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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from: _____ to _____
Commission File No. 0-024970
SAINT ANDREWS GOLF CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
NEVADA 88-0203976
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(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
5325 SOUTH VALLEY VIEW BOULEVARD, SUITE 4, LAS VEGAS, NEVADA 89118
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(Address of Principal Executive Offices, Including Zip Code)
Issuer's Telephone Number, Including Area Code: (702) 798-7777
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE CLASS A COMMON STOCK PURCHASE WARRANTS
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(Title of Class) (Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained in this Form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: $386,200.
As of April 21, 1998, 3,000,000 shares of common stock were outstanding, and
the aggregate market value of the common stock of the Registrant held by
non-affiliates was approximately $5,125,000.
Transitional Small Business Disclosure Format (check one): Yes __ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
THE COMPANY
The Company has developed a concept for family-oriented sports theme
parks named "All-American SportPark," which will include a live action Sports
Entertainment Complex that will feature a Major League Baseball Slugger
Stadium; a NASCAR SpeedPark; an All-American SportPark Pavillion; and an
Allsport Arena. The other portion of the SportPark is a Callaway Golf
Center[TM], which is comprised of a lighted, nine-hole par 3 golf course,
which wraps around a state-of-the-art 110-tee driving range, and a 20,000
square foot clubhouse and training center.
On July 12, 1996, the Company entered into a lease covering approximately
65 acres of land in Las Vegas, Nevada, on which the Company intends to develop
its first All-American SportPark. The property is located south of the Luxor
Hotel on "The Strip" and borders the new I-215 Loop around the City of Las
Vegas. The land is adjacent to McCarran International Airport and in the
vicinity of the new Circus Circus multi-billion dollar hotel resort
development referred to as "The Millennium Project".
Prior to February 26, 1997, the Company was engaged in the business of
franchising retail stores which use the name "Las Vegas Discount Golf &
Tennis" and which sell a variety of golf and tennis equipment, including
apparel and accessories.
The Company's business began in 1974 when Vaso Boreta, the President and
Chairman of the Board of the Company, opened a "Las Vegas Discount Golf &
Tennis" retail store in Las Vegas, Nevada. This store, which is still owned
by Mr. Boreta, subsequently began distributing catalogs and developing a mail
order business for the sale, principally of golf, and, to a lesser extent,
tennis products. In 1984, the Company began to franchise the "Las Vegas
Discount Golf & Tennis" retail store concept and commenced the sale of
franchises. As of February 26, 1997, when the franchise business was sold,
the Company had 43 franchised stores in operation in 17 states and 2 foreign
countries.
The Company is a Nevada corporation which was incorporated on March 6,
1984, under the name "Sporting Life, Inc." The Company's name was changed to
"St. Andrews Golf Corporation" on December 27, 1988, and was further changed
to "Saint Andrews Golf Corporation" on August 12, 1994.
The Company was acquired by Las Vegas Discount Golf & Tennis, Inc., a
publicly-held company, in February 1988, from Vaso Boreta, who was its sole
shareholder. Vaso Boreta presently owns 49.3% of the outstanding stock of Las
Vegas Discount Golf & Tennis, Inc., and serves as the Chairman of the Board of
the Company and Chairman of the Board, President and CEO of Las Vegas Discount
Golf & Tennis, Inc. Las Vegas Discount Golf & Tennis, Inc. presently owns
2,000,000 shares of the Company's common stock, which represents approximately
66.7% of the Company's common stock outstanding.
During July 1994, the Company set up a wholly-owned Nevada subsidiary
named All-American SportPark, Inc., which is the entity under which the
All-American SportPark is operated. Saint Andrews Golf Corporation and
All-American SportPark, Inc. are referred to herein collectively as the
"Company."
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On August 12, 1994, the Company effected a 4,000 for 1 stock split of its
Common Stock. All financial information and share data in this Report gives
retroactive effect to the stock split.
In December 1994, the Company completed an initial public offering of
1,000,000 Units, each Unit consisting of one share of Common Stock and one
Class A Warrant. Two Class A Warrants entitle the holder to purchase one
share of Common Stock at an exercise price of $6.50 per share. The net
proceeds to the Company from this public offering were approximately
$3,684,000.
On July 29, 1996, the Company sold 200,000 shares of its newly designated
Series A Convertible Preferred Stock to Three Oceans Inc. ("TOI"), an
affiliate of SANYO North America Corporation, for $2,000,000 in cash pursuant
to an Investment Agreement between the Company and TOI (the "Agreement"). TOI
purchased 300,000 additional shares of Series A Convertible Preferred Stock
for an additional $3,000,000 in September and October 1996, pursuant to the
Agreement. The Company is using the proceeds of these sales to develop its
first All-American SportPark in Las Vegas.
On December 16, 1996, the Company and its majority shareholder, Las Vegas
Discount Golf & Tennis, Inc. ("LVDG"), entered into negotiations pursuant to
an "Agreement for the Purchase and Sale of Assets" to sell all but one of the
four retail stores owned by LVDG, all of LVDG's wholesale operations and the
entire franchising business of the Company to Las Vegas Golf & Tennis, Inc.,
an unaffiliated company. Accordingly, at December 31, 1996, the Company
accounted for its franchise business segment as "discontinued operations" and
three retail stores to be sold as "held for sale" in the consolidated
financial statements included in this Report. On February 26, 1997, the
Company and LVDG completed this transaction, and as a result the Company's
operations, assets and liabilities now relate solely to the development and
operation of "All-American SportParks".
The total price for the transaction was $5,354,287 of which $4,600,000
was paid in cash, $264,176 was paid with a short-term unsecured receivable,
$200,000 was placed in escrow pending the accounting of inventory and trade
payables, $200,000 was placed in escrow for two years to cover potential
indemnification obligations, $60,475 was withheld for sales taxes, and $29,635
was withheld for accrued vacation liabilities. Of the total purchase price,
$2,603,787 was allocated to LVDG and $2,750,500 was allocated to the Company.
During the three months ended June 30, 1997, the Company recognized an
additional $113,000 of gain on the sale of the franchise assets.
In connection with the sale of the above-described assets, LVDG and the
Company agreed not to compete with the Buyer in the golf equipment business
except that the Company is permitted to sell golf equipment at SportPark and
driving range facilities which it may operate. In addition, the Buyer granted
Boreta Enterprises, Ltd., a limited partnership owned by Vaso Boreta, the
President of LVDG, Ron Boreta, the President of the Company, and John Boreta,
a principal shareholder of LVDG, the right to operate "Las Vegas Discount Golf
& Tennis" stores in southern Nevada, except for Summerlin, Nevada.
During June 1997 the Company and Callaway Golf Company formed All
American Golf LLC, a California limited liability company which was owned 80%
by the Company and 20% by Callaway Golf Company, and which owns and operates
the Callaway Golf Center[TM] at the Las Vegas All American SportPark. In May
1998, the Company sold its 80% interest in all American Golf LLC to Callaway
Golf Company. (See "BUSINESS -- Feature Attractions.")
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The Company's offices are located at 5325 South Valley View Boulevard,
Suite 4, Las Vegas, Nevada 89118. Its telephone number is (702) 798-7777.
PROPOSED MERGER WITH LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
GENERAL
On January 20, 1998, the officers of the Company and LVDG executed a
merger agreement pursuant to which the Company would merge with and into LVDG.
As a result, the separate corporate existence of the Company would cease and
LVDG would continue as the surviving corporation of the merger. Management
also intends to change the name of LVDG to All-American SportPark, Inc. to
reflect the primary business of the surviving corporation.
The Company and LVDG have commenced preparation of a registration
statement on Form S-4 which will be filed with the Securities and Exchange
Commission once it is completed. Once this is declared effective by the
Commission, proxy materials will be submitted to the shareholders of the
Company and LVDG seeking their approval of the merger and the name change.
The merger will take place as promptly as practicable after the adoption and
approval of the merger agreement and the approval of the merger by the
stockholders of LVDG and the stockholders of the Company, and the satisfaction
or waiver of the other conditions to the merger set forth in the merger
agreement.
The exchange rate for the merger described below as based upon the
recommendations of Quist Financial Inc., an independent valuation firm.
The following description of the merger assumes that the stockholders
of both the Company and LVDG approve the merger.
EFFECTIVE TIME
The merger will become effective by the filing of certificates of merger
with the Secretary of State of Colorado and the Secretary of State of Nevada.
CORPORATE MATTERS
At the Effective Time the articles of incorporation and by-laws of LVDG
will become the articles of incorporation and by-laws of the Surviving
Corporation, and the officers and directors of Saint Andrews Golf Corporation
immediately prior to the Effective Time will become the officers and directors
of the Surviving Corporation.
CONVERSION OF SECURITIES
At the Effective Time, by virtue of the merger and without any action on
the part of LVDG, or the holders of the Company's Capital Stock, (i) each
share of the Company's Common Stock issued and outstanding immediately prior
to the Effective Time (except for shares of the Company's Common Stock held by
LVDG) will be converted into 2.4 shares of LVDG common Stock, (ii) each share
of the Company's Series A Preferred Stock will be converted into 2.4 shares of
LVDG Preferred Stock, and (iii) each share of the Company's Common Stock held
by LVDG immediately prior to the Effective Time and all rights in respect
thereof will be canceled. This would result in the current shareholders of
the Company (other than LVDG) owning approximately 38.2% of the surviving
corporation, assuming that there are no dissenting shareholders.
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OPTIONS AND WARRANTS TO PURCHASE THE COMPANY'S COMMON STOCK
At the Effective Time, each option or warrant granted by the Company to
purchase shares of the Company's Common Stock which is outstanding and
unexercised immediately prior to the Effective Time will be assumed by LVDG
and converted into an option or warrant to purchase shares of LVDG Common
Stock in such number and at such exercise price as described below and
otherwise having the same terms and conditions as in effect immediately prior
to the Effective Time. The number of shares of LVDG Common Stock to be
subject to the new option or warrant will be equal to the product of (i) the
number of shares of the Company's Common Stock subject to the original option
or warrant multiplied by (ii) the Exchange Ratio. The exercise price per
share of LVDG Common Stock under the new option or warrant will be equal to
the quotient of (i) the exercise price per share of the Company's Common Stock
under the original option or warrant divided by (ii) the Exchange Ratio.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties on the part of LVDG and the Company, including, without limitation,
representations and warranties as to (i) organization and qualification and
subsidiaries; (ii) organizational documents; (iii) capitalization; (iv)
authority relative to the Merger Agreement; (v) no conflict and required
filings and consents; (vi) permits and compliance with laws; (vii) Commission
filings and financial statements; (viii) employee benefit plans and labor
matters; (ix) accounting and certain tax matters; (x) contracts; (xi)
litigation; (xii) intellectual property; (xiii) insurance; and (xiv) certain
interests of officers and directors in the constituent corporations.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement provides that, between the date of the Merger
Agreement and the Effective Time, LVDG and the Company must conduct their
respective businesses in the ordinary course consistent with past practice and
use all reasonable efforts to preserve substantially intact their respective
business organizations. The Merger Agreement also provides that neither LVDG
nor the Company may, without the prior written consent of the other party,
between the date of the Merger Agreement and the Effective Time, (i) amend its
articles of incorporation or by-laws; (ii) declare or pay any dividend or
other distribution with respect to any of its capital stock; (iii) reclassify,
combine, split or subdivide or redeem, purchase or otherwise acquire, directly
or indirectly, any of its capital stock; (iv) authorize or enter into any
formal or informal agreement or otherwise make any commitment to take any
action prohibited by the Merger Agreement; or (v) issue any shares of capital
stock, except for issuances of capital stock pursuant to options, warrants
and other rights to acquire capital stock outstanding on the date of the
Merger Agreement, or for issuances of capital stock in connection with
financing of the Las Vegas All-American SportPark.
PLAN OF REORGANIZATION
The Merger Agreement is intended to constitute a tax-free "plan of
reorganization" within the meaning of the income tax regulations promulgated
under the Code. Pursuant to the Merger Agreement, LVDG and the Company have
agreed that, from and after the date of the Merger Agreement, they will use
all reasonable efforts to cause the Merger to qualify, and will not knowingly
take any actions or cause any actions to be taken which could reasonably be
expected to prevent the Merger from qualifying, as a tax-free reorganization
under the Code.
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FURTHER ACTION; CONSENTS; FILINGS
The Merger Agreement provides that LVDG and the Company must use all
reasonable efforts to (i) take, or cause to be taken, all appropriate action,
and do, or cause to be done, all things necessary, proper or advisable under
applicable law or otherwise to consummate and make effective the Merger; (ii)
obtain from governmental entities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained by LVDG or the
Company in connection with the authorization, execution and delivery of the
merger Agreement and the consummation of the Merger; and (iii) make all
necessary filings, and thereafter make any other required or appropriate
submissions, with respect to the Merger Agreement and the Merger required
under the rules and regulations of the Securities Act, the Exchange Act and
any other applicable federal or state securities laws and any other applicable
law.
CONDITIONS TO THE MERGER
CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of both
LVDG and the Company to consummate the Merger are subject to the satisfaction
or waiver of certain conditions, including, without limitation, (i) the
continuing effectiveness of the Registration Statement which includes the
Joint Proxy Statement/Prospectus; (ii) the approval of the Merger Agreement
and the Merger by the shareholders of LVDG and the Company; (iii) the absence
of any injunction or order making the Merger illegal or otherwise prohibiting
its consummation; and (iv) the receipt of all material consents, approvals and
authorizations legally required to be obtained to consummate the Merger.
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to consummate the Merger are subject to the satisfaction or waiver of
certain additional conditions, including, without limitation, (i) the accuracy
at and as of the Effective Time of each of the representations and warranties
of LVDG contained in the Merger Agreement; (ii) the performance or compliance
by LVDG with all material agreements and covenants required by the Merger
Agreement to be performed or complied with by it on or prior to the Effective
Time; and (iii) the receipt from Overton Babiarz & Sykes, P.C. of its opinion
to the effect that the Merger will be treated for federal income tax purposes
as a tax-free reorganization.
CONDITIONS TO THE OBLIGATIONS OF LVDG. The obligations of LVDG to
consummate the Merger are subject to the satisfaction or waiver of certain
additional conditions, including, without limitation, (i) the accuracy at and
as of the Effective Time of each of the representations and warranties of the
Company contained in the Merger Agreement; (ii) the performance or compliance
by the Company with all material agreements and covenants required by the
Merger Agreement to be performed or complied with by it on or prior to the
Effective Time; and (iii) the receipt from Overton Babiarz & Sykes, P.C. of
its opinion to the effect that the Merger will be treated for federal income
tax purposes as a tax-free reorganization.
TERMINATION
The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time, notwithstanding the
adoption and approval of the Merger Agreement by the shareholders of LVDG
and/or the Company (i) by the mutual written consent of the boards of
directors of each of LVDG and the Company, or (ii) by either LVDG or the
Company, if any governmental order, writ, injunction, or decree preventing the
consummation of the Merger is entered by any court of competent jurisdiction
and becomes final and nonappealable.
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BUSINESS OF THE COMPANY
ALL-AMERICAN SPORTPARK
The Company has developed a concept for family-oriented sports theme
parks named "All-American SportPark," which will include a live action Sports
Entertainment Complex that will feature a Major League Baseball Slugger
Stadium; a NASCAR SpeedPark; an All-American SportPark Pavillion; and an
Allsport Arena. The other portion of the SportPark is a Callaway Golf
Center[TM], which is comprised of a lighted, nine-hole par 3 golf course,
which wraps around a state-of-the-art 110-tee driving range, and a 20,000
square foot clubhouse and training center.
On July 12, 1996, the Company entered into a lease agreement covering
approximately 65 acres of land in Las Vegas, Nevada, on which the Company
intends to develop its first All-American SportPark. The property is located
south of the Luxor Hotel on "The Strip" and borders the new I-215 Loop around
the City of Las Vegas. The land is adjacent to McCarran International Airport
and in the vicinity of the new Circus Circus multi-billion dollar hotel resort
development referred to as "The Millennium Project".
On June 20, 1997, the lessor of the 65 acre tract agreed with the
Company to cancel the original lease and replace it with two separate leases:
one lease with All American Golf, LLC, which covers the 41 acres where the
Callaway Golf Center[TM] is located; and the second lease with the Company
which covers the 24 acres where the Sports Entertainment Complex is located.
Both leases are very similar in structure. They are both fifteen year
leases with options to extend for two additional five year terms. The lease
for the Callaway Golf Center[TM] commenced on October 1, 1997 when the golf
center opened. The other lease commenced on February 1, 1998. The Sports
Entertainment Complex is scheduled to open during June 1998.
The minimum rent for the golf center lease is $398,077 per year for the
first five years and it increases by 10% at the end of each five years during
the term of the lease. The minimum rent for the other lease is $226,923 per
year for the first five years and it increases by 10% at the end of each five
years during the term of the lease. Both leases also provide for additional
rent to the extent that percentages ranging from 3% to 10% of gross receipts,
depending on the type of revenue, exceed the minimum rental. In connection
with the signing of the lease covering 24 acres, the Company paid a deposit of
$500,000 which will be applied to minimum rental payments, and a security
deposit of approximately $37,820 which will be applied to minimum rental
payments at the end of the fourth year of the lease.
As of the date of this Report, the Company has only secured financing
for the golf facility portion of the first SportPark. The Company has been
holding discussions with a number of potential corporate sponsors who have
expressed an interest in participating in the SportPark, and management
expects that corporate sponsors will contribute a portion of the financing
needed. The Company expects to receive the balance of the financing from a
combination of sources including outside equity and/or debt investors, bank
financing, and the Company's own cash. There is no assurance that sufficient
financing will be obtained from these sources for the Sports Entertainment
Complex.
In April 1997, the Company broke ground on the Callaway Golf Center[TM],
and it opened to the public on October 1, 1997. The preliminary opening of
the Sports Entertainment Complex is anticipated to be in June 1998, however,
the actual opening date could depend upon when the financing for this portion
is
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received. The projected opening date is also subject to change due to
construction delays due to availability of construction personnel, materials,
adverse weather and other factors.
The Company has obtained project zoning, use permits and variances from
Clark County; Federal Aviation Administration approval for construction (due
to the SportPark's proximity to McCarran International Airport); approval of
the Clark County Department of Aviation; and architectural review approval by
the Planning Commission. The Company has submitted a comprehensive Water Plan
which was accepted for review by the Las Vegas Valley Water District in
February 1997. The Company's improvement plans were approved by the Clark
County Public Works in February 1997 pending review by the Clark County
Building Department. The Company now believes that it has obtained all
required permits and approvals except for minor routine approvals.
FEATURE ATTRACTIONS
Callaway Golf Center[TM]. In June 1997, the Company completed a final
agreement with Callaway Golf Company ("Callaway Golf") to form a limited
liability company named All American Golf LLC (the "LLC") for the purpose of
operating a golf facility, to be called the "Callaway Golf Center[TM]," on
approximately forty-one (41) acres of land which is inside the All-American
SportPark located on approximately sixty-five (65) acres adjacent to Las Vegas
Boulevard in Las Vegas. The Callaway Golf Center[TM] opened to the public on
October 1, 1997.
The Callaway Golf Center[TM] includes a 110-tee driving range in a
two-tiered format. The driving range is designed to have the appearance of an
actual golf course with ten impact greens and a 1-1/2 acre lake with cascading
waterfalls and an island green. Pro-line equipment and popular brand name
golf balls are utilized. In addition, the golf center includes a lighted nine
hole, par three golf course named the "Divine Nine". The golf course has been
designed to be challenging, and has several water features including lakes,
creeks, water rapids and waterfalls, golf cart paths and designated practice
putting and chipping areas. At the entrance to the golf center is a 20,000
square foot clubhouse which includes The Callaway Golf Experience, a David
Leadbetter Golf Academy, a retail store, a restaurant and bar, and an outdoor
patio overlooking the golf course and driving range with the Las Vegas "Strip"
in the background.
Callaway Golf has constructed and operates a state-of-the-art training
center at its own cost (estimated at $2,000,000) which is known as "The
Callaway Golf Experience". The Callaway Golf Experience, located in the
clubhouse, is Callaway Golf's high-tech evaluation system that allows golfers
of all skill levels to compare the performance of different golf clubs. The
Company is managing the entire Callaway Golf Center[TM] except for the
Callaway Golf Experience and other tenant facilities for which it receives a
management fee of 5% of revenues. Therefore, the Company receives a 5%
management fee from all revenues from the par 3 golf course, the driving
range, and all tenant facilities except for the Callaway Golf Experience.
Callaway Golf will receive 100% of the revenues from the Callaway Golf
Experience and will pay the LLC $50,000 per year for the right to occupy that
portion of the premises.
The LLC was owned 80% by the Company and 20% by Callaway Golf. Callaway
Golf agreed to contribute $750,000 of equity capital and loan the LLC
$5,250,000. The Company contributed the value of expenses incurred by the
Company relating to the design and construction of the golf center and cash in
the combined amount of $3,000,000. Callaway Golf's loan to the LLC has a ten
year term and bears interest at 10%. The principal is due in 60 equal monthly
payments commencing five years after the golf center opened. Additional
payments of principal are
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required under certain conditions if the LLC is making cash distributions to
its owners before the loan has been repaid. The loan can also be repaid
without penalty at any time.
If during the first year after the effective date of the Callaway Golf
loan the Company contributed additional cash to the LLC for the purpose of
paying down the loan, Callaway Golf was required to also contribute to the LLC
in the form of equity 25% of the amount contributed by the Company up to a
maximum of $850,000.
The LLC has executed a license agreement with Callaway Golf pursuant to
which the LLC licenses the right to use the mark "Callaway Golf Center[TM]"
from Callaway Golf for an annual royalty not to exceed $50,000. Pursuant to
this agreement, Callaway Golf has the right to terminate the agreement at any
time without cause on ninety days prior written notice and with payment of
$500,000. Such termination could have an adverse impact on the success of the
golf center.
On May 5, 1998, pursuant to the terms of a Purchase and Sale Agreement
between the Company and Callaway Golf, the Company sold its 80% membership
interest in the LLC to Callaway Golf for $1,500,000 in cash and the
forgiveness of a $3,000,000 debt, including the interest thereon, owed to
Callaway by the Company. Of the cash payment, $500,000 was held back by
Callaway until it has assured itself that it has obtained all of the rights
necessary to operate the Callaway Golf Center. In connection with the sale of
the membership interest, the Company resigned as the manager of the LLC, and
agreed not to compete with the Callaway Golf Center in Clark County, Nevada
for a period of two years.
As a result of the sale of its interest in the LLC, the Company has no
ownership of the Callaway Golf Center, and the Callaway Golf Center will now
be operated separately from the All-American Sport Park. However, the Company
will have the option to repurchase the 80% membership interest for a period of
two years. To exercise such right, the Company would be required to pay
$4,500,000 plus 100% of any undisclosed liabilities as of May 5, 1998, which
have not been satisfied by the Company, plus 80% of any additional capital
expenditures by the LLC, plus 80% of losses incurred by the LLC to the date of
exercise of the option. In the event that the Company exercises this option,
the Company will receive an allocation of the profits and losses in the LLC,
but it will not have the right to manage the LLC or Callaway Golf Center.
The above transaction was completed in order to improve the Company's
balance sheet which in turn will improve the Company's ability to complete the
financing needed for the final construction stage of the All-American
SportPark and for the business activities going forward.
MAJOR LEAGUE BASEBALL SLUGGER STADIUM. The Slugger Stadium will be a
full size replica of a major league ballpark for batting and baseball
training. The Company has been granted a license from Major League Baseball
Properties to own and operate Major League Baseball Slugger Stadiums. Under
the license agreement, the Company also has the right to utilize certain Major
League Baseball trademarks including those of the All Star Game, Division
Series, League Championship Series and World Series. Slugger Stadium is a
nostalgic formatted batting stadium which attempts to duplicate a major league
experience for its patrons. Unlike batting cages which are the normal
industry standard, the Company's design is a full size stadium that replicates
many of the features of a modern baseball stadium. Plans include 16 batter
boxes and 16 on-deck circles. Batters will have the option of hitting hard or
soft balls delivered at three different speeds. Outfield wall replicas of
Fenway Park's "Green Monster" Wall, Baltimore's Camden Yards, Chicago's
Wrigley Field, Yankee Stadium, and The Ball
Park in Arlington, Texas will be designed to challenge batters to hit the
balls
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out of the park. Completing the Major League experience will be authentic
turnstiles, classic ballpark food and beverage concessions, baseball
memorabilia, electronic scoreboard and specially designed sound systems that
provide typical baseball sounds including proprietary designed umpire calls of
balls and strikes. See "Agreement with Major League Baseball" below.
NASCAR SPEEDPARK. The Company has a license agreement with The National
Association of Stock Car Auto Racing, Inc. ("NASCAR") for the operation of
SpeedParks as a part of the All-American SportPark or as a stand-alone NASCAR
SpeedPark. The agreement, as amended, provides that the Company has an
exclusive license to use certain trademarks and service marks in the
development, design and operation of go-kart racing facilities having a NASCAR
racing theme in the territories of Las Vegas, Nevada and Southern California.
The agreement provides that the exclusive rights to Las Vegas are subject to
the condition that the Las Vegas SpeedPark is opened by March 1, 1998, and
that the exclusive rights to Southern California are subject to the condition
that the Southern California SpeedPark is opened by March 1, 1999. Under the
terms of the agreement, if the Company opened the Las Vegas site by March 1,
1998, the license for that site would continue until December 31, 2003, and if
the Company opens the Southern California site by March 1, 1999, the license
for that site will continue until December 31, 2003. NASCAR has verbally
agreed to extend the March 1, 1998, deadline for the Las Vegas SportPark, but
no new deadline has yet been determined.
As consideration for the license the Company has agreed to pay a fee of
$25,000 plus $25,000 for each new SpeedPark opened after the first SpeedPark.
In addition, the Company has agreed to pay NASCAR a royalty up to five percent
(5%) of each SpeedPark's revenue from racing activities plus a royalty ranging
from two percent (2%) to five percent (5%) on revenues received from sponsors
and promoters of SpeedPark activities.
The SpeedPark will include three tracks to accommodate three styles of
racing: family, adult and junior tracks. The family go-kart track will be a
1,200 linear foot road course for five horsepower go-karts designed for
families and children 10 and up, and the other track will be a 2,200-foot road
course track for eighteen horsepower NASCAR-style go-karts designed for youths
and adults 16 years and older. The SpeedParks will be comprised generally of
the NASCAR Go-Kart SpeedPark, the Garage Experience, the Winner's Circle, the
Infield RV Park, Victory Lane, the NASCAR Jr. Track, the Tailgater's Dining
Circle and the NASCAR Retail Trackside Trailer Merchandising Experience.
Scale model, near emissions-free, gas-powered, stock cars complete with
sponsorship graphics and signage, will compete on the three tracks. The cars
are 5/8 scale NASCAR Winston Cup Stock Car replicas, 5/8 scale NASCAR
Craftsman Truck Series replicas and Jr. Track Stock Cars.
In May 1996, the Company entered into an agreement with Jeff Gordon, the
1997 NASCAR Winston Cup Champion, 1997 Daytona 500 Champion, 1997 Coca-Cola
600 Champion, 1995 Winston Cup Champion and former NASCAR Winston Cup Rookie
of the year, to serve as spokesperson of the NASCAR SpeedPark through April
30, 2000. According to the original agreement, Mr. Gordon was paid $25,000
for his services during 1996, and is to be paid $25,000 per SpeedPark opening
per year with a minimum guarantee over the life of the agreement; he is to
receive 1% of the net profits of each SpeedPark; .25% of net profits are to go
to a charity designated by Mr. Gordon; and additional fees for recording
television and radio spots and making more than six appearances per year. Mr.
Gordon was also granted options under the Company's stock option plan. On
November 20, 1997, the agreement with Mr. Gordon was amended to, among other
things, reduce the amount of services to be provided by him, to make his
services non-exclusive to the Company, to limit
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his services to the Las Vegas SportPark and to set his base fee at $25,000 per
year.
ALL-AMERICAN SPORTPARK PAVILION. The 100,000 square foot Pavilion will
include a multi-purpose sports arena (the "Allsport Arena"), speciality retail
areas, a video arcade, food courts, meeting rooms, special events space and
leased tenant facilities for food and beverage service and other Company and
tenant operated sports activities.
ALLSPORT ARENA. This space can be used to accommodate indoor
professional beach volleyball tournaments, professional roller hockey
exhibition games, basketball tournaments, tennis matches, cultural and civic
special events, and annual super bowl parties which coincide with
internationally broadcasted major sporting events, music and entertainment
events. It will include a giant video display and movable seating which is
adaptable for 1,500 to 3,000 people to view an event. When the arena is not
in use for a scheduled event, it will accommodate the core business use for
in-line skaters who will be able to skate to an entertaining multimedia light
and sound performance.
AGREEMENT WITH MAJOR LEAGUE BASEBALL
In December 1994, the Company entered into an agreement with Major
League Baseball ("MLB") concerning a license for the use of MLB logos, marks
and mascots in the decor, advertising and promotions of the Company's Slugger
Stadium concept. This agreement was amended during August 1997. Pursuant to
the amended agreement, the Company holds the exclusive right to identify its
indoor and outdoor baseball batting stadiums as Major League Baseball Slugger
Stadiums. The license covers the United States and expires on November 30,
2000, subject to the right to extend for three additional years provided
certain conditions are met. As consideration for the license, the Company
agreed to pay $50,000 for each Stadium opened provided that in any year of the
term of the agreement a stadium is not opened, the Company must pay $50,000
during such year. The Company has made the payments required for 1995, 1996
and 1997. In addition to and as an offset against the minimum payments set
out above, the Company is required to pay to MLB a royalty based on the
revenue from the batting cages of the greater of (i) six and one-quarter
percent (6-1/4%) or (ii) the royalty rate payable by the Company to any other
individual or entity for the right to open or operate any attraction or event
in the Sports Entertainment Complex.
The Company's right to exclusively use MLB logos and other marks at its
baseball batting stadiums is dependent upon certain conditions set forth in
the agreement.
SPONSORSHIP AGREEMENT WITH PEPSI-COLA COMPANY
In December 1997, the Company entered into a sponsorship agreement with
the Pepsi-Cola Company ("Pepsi") under which Pepsi received certain exclusive
rights related to all non-alcoholic beverage products, except for certain
specialty tenants which may use their products such as Starbucks Coffee Shop,
and a few other minor exceptions, in exchange for an annual fee and
advertising support expenditures. In addition, the agreement provides that
Pepsi will have specified signage rights and the multipurpose arena will be
named the AllSport Arena after Pepsi's Allsport drink product. In addition,
the agreement provides that Pepsi will provide, without charge, all equipment
needed to dispense its products at the SporkPark.
The agreement with Pepsi provides that the Company and Pepsi will
participate in joint marketing programs such as promotions on Pepsi's products
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and the SportPark. In addition, Pepsi will have the right to provide three
marketing events per year. These events are to be used to promote the
business of the Company and Pepsi.
In consideration for the above rights, Pepsi agreed to pay the Company
$250,000 when any portion of the SportPark was officially opened; an
additional $250,000 when the SportPark is 100% completed and all attractions
are accessible by the public; and make additional comparable payments on an
annual basis for the remaining 3 years of the lease. The sponsorship
agreement will terminate five years after the SportPark is 100% completed,
unless earlier terminated as provided in the agreement. The Company received
the first $250,000 during December 1997 since Callaway Golf Center[TM] had
opened on October 1, 1997.
AGREEMENT WITH SPORTSERVICE CORPORATION
In September 1997, the Company entered into a lease and concession
agreement with Sportservice Corporation ("Sportservice") which provides that
Sportservice has the exclusive right to prepare and sell all food, beverages
(alcoholic and non-alcoholic), candy and other refreshments throughout the All
American SportPark, including the Callaway Golf Center[TM], during the ten
year term of the agreement. Sportservice has agreed to pay rent based on a
percentage of gross sales depending upon the level of sales, whether the
receipts are from concession sales, the Arena restaurant, the Clubhouse,
vending machines, mobile stands, or catering sales. Rents from the Callaway
Golf Center[TM] will be paid to All American Golf LLC and all other rents will
be paid to the Company.
Sportservice is expected to invest approximately $3.85 million into the
concessions and operations which includes all food service leasehold
improvements. Sportservice is a wholly-owned subsidiary of Delaware North
Company. Other Delaware North Companies include the Boston Garden, the Fleet
Center in Boston, and food service clients which include the Ballpark in
Arlington, Texas, California Speedway, Miller Park in Milwaukee, Space Port
USA at Kennedy Space Center and Yosemite National Park.
The agreement also provides Sportservice with a right of first refusal
for future parks to be built by the Company in consideration for a $100,000
payment. An additional payment of up to $100,000 is due depending on whether
Sportservice's development costs for its leasehold improvements and food
service assets exceed the estimate of $3.85 million.
The agreement has a number of other terms and conditions including a
requirement that the Company and the LLC must develop and construct the
SportsPark in accordance with certain specifications provided to Sportservice,
and provide all necessary building structure and shell components. The
Company and the LLC must operate the SportsPark on a year-round, seven days a
week basis throughout the term of the agreement.
AGREEMENT WITH INTEGRATED SPORTS INTERNATIONAL
The Company has entered into a two year agreement with Integrated Sports
International ("ISI") whereby ISI has been retained to assist the Company in
obtaining corporate sponsorship for various areas of the SportPark.
ISI has agreed to serve as the SportPark's exclusive sponsorship sales
company and to serve as a consultant to develop ways to help the SportPark in
the areas of marketing and promotions that will improve perceived value from
tenants and sponsors. ISI is also to consult on and implement a
licensing/merchandising plan to enhance the image of the SportPark.
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ISI will be paid a monthly consulting fee and a percentage of
sponsorship sales and product sponsorships. Although the agreement has a two
year term commencing June 10, 1997, the exclusive nature of the agreement will
terminate after the first six months if ISI is not successful in assisting the
Company in securing sponsorships during the first six months.
ISI represents Disney International and a number of sports celebrities.
LIABILITY INSURANCE
The Company intends to purchase a comprehensive general liability
insurance policy to cover possible claims for injury and damages from
accidents and similar activities. There is no assurance that such coverage
can be obtained, or if obtained, that it can be obtained at reasonable rates
nor that it will be sufficient to cover or be available for future claims.
MARKETING
Major League Baseball Slugger Stadium is the "Official Batting Stadium
of Major League Baseball". The unique baseball stadium concept is expected to
be expanded to other locations in the United States and overseas using the
prototype installation at the All-American SportPark as a demonstration
facility. Considerable market research by management has indicated a large
potential market for Slugger Stadium. Possible locations include new gated
sites inside major theme parks, attachments to regional and value oriented
shopping malls, inside new sports stadium and Major League Ballpark complexes
which are either in the planning and design phase or currently under
construction and other All-American SportParks or as stand alone sites.
Target consumers include the family, adults, softball players and all youth
baseball organizations.
The Callaway Golf Center[TM] which includes the nine-hole par 3 golf
course, driving range, and clubhouse is designed as a country club atmosphere
for the general public. This concept may be expanded into various hotel and
resort areas throughout the United States and overseas and can also be
included in the SportPark opportunities described above or as a stand alone
business.
NASCAR SpeedPark is "The Official Go-Kart Racing Facility Licensed by
NASCAR". Management plans to develop the concept to include installations
alongside Superspeedways, NASCAR Team Race/Shops Racing Retail & Entertainment
Centers, stand alone facilities and as a separate gated attraction inside
major theme parks throughout the United States.
The All-American SportPark Pavilion area of the project can be recreated
as a stand alone development in a downtown urban setting alongside new arenas,
shopping malls, and football/baseball stadiums.
The Company's marketing efforts are directed towards a number of large
existing and potential markets for which there can be no assurance of
financial success. Further, to expand the concepts beyond the first location
in Las Vegas could require considerably more financial resources than the
Company presently has and more management and human resources than presently
exist at the Company.
COMPETITION
Any SportParks built by the Company will compete with any other
family/sports attractions in the city where the SportPark is located. Such
attractions could include amusement parks, driving ranges, water parks, and
any other type of family or sports entertainment. The Company will be relying
on the combination of active user participation in the sports activities and
uniqueness
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of the Park features, attractive designs, and competitive pricing to encourage
visitors and patrons. There can be no assurance that the Company will be able
to operate the park on a profitable basis.
TRADE NAMES AND TRADEMARKS
Saint Andrews has filed an "intent to use" trademark application for
"All-American SportPark" and a related design and "Slugger Stadium". The
Company intends to maintain the integrity of the trademarks, other proprietary
names and marks against unauthorized use. LVDG has filed "intent to use"
trademark application with regard to the "St. Andrews" name and related
designs with respect to mens' and womens' clothing and certain golf equipment
and accessories. LVDG then licensed the rights to use the St. Andrews name to
the Company.
The trademarks "Las Vegas Discount Golf & Tennis" and "St. Andrews" on
golf clubs and golf bags, are registered on the principal register of the
United States Patent and Trademark Office as well as in Canada and in the
State of Nevada. Management of the Company also believes that it and/or the
Company have developed proprietary rights to the name "Birdie Golf". In
February 1997, the rights to the trademarks "Las Vegas Discount Golf & Tennis"
and "Birdie Golf" were assigned to the purchaser in the sale of assets
transaction.
The purchaser of the assets granted back to Boreta Enterprises, Ltd. a
perpetual license to use the name Las Vegas Discount Golf & Tennis for retail
equipment stores in the State of Nevada, south of a line between Pahrump,
Nevada and Mesquite, Nevada, except for Summerlin, Nevada.
During September 1997, the Company agreed to sell its rights to the St
Andrews name to Boreta Enterprises, Ltd. for a $20,000, two year promissory
note since the Company has committed all of its efforts to the development and
management of the All- American SportPark and no longer intends to engage in
the business of selling golf equipment or apparel.
EMPLOYEES
As of January 15, 1998, the Company employed a total of 10 persons on a
full-time basis. None of the Company's employees are represented by a union,
and the Company believes that its employee relations are good. The Company
expects to add approximately 110 full-time and 40 part-time employees when the
Sports Entertainment Complex opens. The Callaway Golf Center[TM] employed
approximately 36 full-time and 10 part-time persons, however, these persons
are employees of the LLC.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company currently occupies approximately 5,340 square feet of office
and warehouse space at 5325 South Valley View Boulevard, Suite 4, Las Vegas,
Nevada, and pays monthly rent of approximately $2,819. The space is leased
from Voss Boreta, the Company's Chairman of the Board. The rent is adjustable
annually based on increases in the consumer price index and the lease expires
January 31, 2005. The Company's Board of Directors believes that the rent
paid is comparable to that which it would pay to an unaffiliated party.
On June 20, 1997, the Company entered into a lease for approximately 24
acres of land in Las Vegas, Nevada, on which the Company is building the
Sports Entertainment Complex portion of its SportPark. In addition, All
American Golf LLC entered into a lease for approximately 41 acres of land
where the Callaway Golf Center[TM] is being built. The terms of both leases
are described above under the heading "BUSINESS OF THE COMPANY -- ALL AMERICAN
SPORTPARK."
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ITEM 3. LEGAL PROCEEDINGS.
Except for the lawsuits described in the following paragraphs, the
Company is not presently a party to any legal proceedings, except for routine
litigation that is incidental to the Company's business.
In 1995, Giant Ride, Inc. filed suit in the District Court of Clark
County, Nevada against the Company claiming that the Company had breached a
contract to purchase a giant slide for the Company's Las Vegas SportPark. In
January 1998, a trial was held and a verdict was entered in favor of Giant
Ride, Inc. in the amount of $20,854. The Company intends to pay the judgment
once it is so entered by the Court.
In 1997, Puckett Marketing filed suit in the District Court of Clark
County, Nevada against the Company claiming that the Company had not paid for
approximately $60,000 of advertising services performed by Puckett Marketing.
The suit is currently in the discovery stage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION. The Company's Common Stock is traded in the
over-the-counter market and is quoted on the NASDAQ Small-Cap Market under the
symbol "SAGC." The following table sets forth the high and low sales prices
of the Common Stock for the periods indicated.
HIGH LOW
----------------------------- ----- -------
Year Ended December 31, 1996:
First Quarter $6.375 $3.625
Second Quarter $7.875 $4.5625
Third Quarter $6.875 $3.875
Fourth Quarter $5.25 $3.25
Year Ended December 31, 1997:
First Quarter $4.375 $2.75
Second Quarter $4.625 $2.375
Third Quarter $4.75 $2.75
Fourth Quarter $3.625 $1.4375
HOLDERS. The number of holders of record of the Company's $.001 par
value common stock at March 5, 1998, was 43. This does not include
approximately 700 shareholders who hold stock in their accounts at
broker/dealers.
DIVIDENDS. Holders of common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No
dividends have been paid with respect to the Company's common stock and no
dividends are anticipated to be paid in the foreseeable future. It is the
present policy of the Board of Directors to retain all earnings to provide for
the growth of the Company. Payment of cash dividends in the future will
depend, among other things, upon the Company's future earnings, requirements
for capital improvements and financial condition.
PRIVATE SALES OF SECURITIES. No private sales of securities were made
during the year ended December 31, 1997.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
The Company's current operations consist of the development and
operation of sport-oriented theme parks under the name "All-American
SportPark".
1997 VERSUS 1996
DISCONTINUED OPERATIONS. On February 26, 1997, the Company and Las
Vegas Discount Golf & Tennis, Inc., the majority shareholder of the Company,
sold certain assets and transferred certain liabilities to an unrelated buyer.
The total consideration received was approximately $5.3 million of which
approximately $2,750,000 was allocated to the Company. Specifically, the
Company sold all of its interest in its franchise business, including its
rights under agreements with franchisees, the right to franchise such stores
and the rights to related trademarks. The buyer assumed certain trade payables
of the Company and Las Vegas Discount Golf & Tennis, Inc. The Company
recognized a gain of approximately $2.1 million (net of tax) from this sale.
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CONTINUING OPERATIONS
REVENUE. Revenue increased from $25,700 in 1996 to $387,200 in 1997.
The increase is due primarily to the opening of the Callaway Golf Center on
October 1, 1997. Other income was $49,400 in 1997 versus $25,700 in 1996
representing primarily management fees for operating the Callaway Golf Center
and a one time licensing fee for the use of trademarks by Boreta Enterprises.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses related to continuing operations consist principally
of payroll, rent and other corporate costs. The increase to $878,400 in 1997
from $294,800 in 1996 relates to an increase in legal, other professional
costs and personnel costs associated with the opening of the Callaway Golf
Center and development of the SportPark.
SPORTPARK DEVELOPMENT COSTS. The Company's strategic emphasis at this
point is the development of sports-oriented theme parks under the name
"All-American SportPark". During 1997, the Company expensed $255,100 in
development of this concept versus $207,000 in 1996. The Company has leased a
site for its first "All-American SportPark" development in Las Vegas, Nevada
which is scheduled to open in June 1998 (see discussion under "Liquidity and
Capital Resources").
PREOPENING EXPENSE. Preopening expense of $563,000 related to the All-
American SportPark was expensed due to the uncertainty related to completing
the facility, while $40,000 of preopening expense was amortized related to a
full quarter for the Callaway Golf Center.
INCOME TAXES. Due to operating losses, the Company has no tax provision
nor has it recorded any tax benefits.
NET LOSS. The loss from continuing operations for the year ended
December 31, 1997 was $1,963,400 compared to a loss of $421,100 in 1996. The
losses are principally attributed to the startup and development of the
"All-American SportPark" operations.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had negative working capital of
approximately $3,139,300 as compared to working capital of approximately
$5,510,900 at December 31, 1996. Cash decreased by $5,642,100 due to SportPark
and Callaway Golf Center expenditures in 1997 of $16,000,000, offset in part
by $5,750,000 in debt proceeds, a $600,000 note payable to shareholder,
$668,400 from a bank line of credit, $750,000 minority interest proceeds from
Callaway Golf for the golf facility, and $2,242,900 in cash proceeds from the
sale of the franchise business and other fixed assets.
Capital expenditures for 1998 are expected to be approximately $12
million and relate predominately to the Las Vegas SportPark complex
development and the Callaway Center.
On June 13, 1997 the Company and Callaway Golf Company ("Callaway Golf")
announced the formation of All American Golf, LLC, a limited liability
California corporation, to construct, manage and operate "Callaway Golf
Center", a premier golf facility at the site of the All-American SportPark.
The Company owns 80 percent of the members' units of the LLC for a
contribution of $3 million while Callaway Golf owns 20% for a contribution of
$750,000. The Callaway Golf Center commenced operations on October 1, 1997.
The total cost for the Callaway Golf Center was approximately $10.1 million.
Callaway Golf provided $5,250,000 in debt
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financing which bears interest at 10 percent with interest only payments
commencing 60 days after the opening of the golf center through a date ten
years after the opening at which point the remaining accrued interest and
principal will be due in full. As of December 31, 1997, $5,250,000 had been
drawn under this agreement. The Company is managing the driving range, golf
course and tenant facilities in the clubhouse.
While the Company has entered into the Callaway Golf arrangement as
previously described, the Company currently has not secured adequate financing
for the completion of the Sports Entertainment Complex portion of the
SportPark. The Company has been holding discussions with a number of
potential corporate sponsors who have expressed an interest in participating
in the SportPark, and management expects that corporate sponsors will
contribute a portion of the financing needed. As of December 31, 1997, a non-
refundable fee of $100,000 was received from CTS Enterprises which will
operate the amusement portion of the SportPark, $100,000 from Sports Service
which will operate the food concessions for the Golf Center and SportPark, and
$250,000 was received from the Pepsi-Cola company for the exclusive right to
provide their products at the Golf Center and SportPark. These amounts have
been deferred until the SportPark is opened. The Company expects to receive
the balance of the financing from a combination of sources including
sponsorship, outside equity and/or debt investors, and bank financing. There
is no assurance that required financing will be obtained from any of these
sources.
Subsequent to December 31, 1997, on February 13, 1998, the Company
secured a short-term loan at 10% for $4 million from Nevada State Bank. The
Company will pay interest only commencing March 10, 1998, with the full loan
plus unpaid interest due August 10, 1998. On March 19, 1998, the Company
obtained an additional short-term loan at 10% for $3 million from Callaway
Golf; the note was due in one payment plus all unpaid interest on June 18,
1998. On January 26, 1998 and April 2, 1998 the Company's chairman loaned the
Company $200,000 and $400,000 respectively. The loans are demand notes at 10%.
The Company intends to use the proceeds from these loans towards completing
the construction of the All-American SportPark.
In May 1998, the Company sold its 80% interest in All American Golf LLC
to Callaway Golf in exchange for $1,500,000 in cash and the cancellation of
the $3,000,000 note issued to Callaway Golf which was due in June 1998. Of
the cash portion of the payment, $500,000 was withheld pending confirmation of
the transfer of certain rights to Callaway Golf.
On May 7, 1998 the Company received a Bridge Mortgage Loan Commitment
Letter (the "Commitment Letter") from First Connecticut Consulting Group, Inc.
(the "Lender") pursuant to which the Lender would loan up to $18 million to
the Company for one year. The loan would bear interest at the rate of 12% and
be secured by a first mortgage on the All-American SportPark in Las Vegas.
The loan would also be guaranteed by LVDG. The Commitment Letter requires
that the Company pay a non-refundable commitment fee of $180,000 on acceptance
of the Commitment. The Company must pay a financing fee of 4% of the loan
amount at closing, however the $180,000 financing fee will be credited against
the financing fee. The Company must also pay all of the Lender's loan
expenses, and a 2% fee to the person who brokered the loan.
The loan can be prepaid at any time, provided that at least nine months
of interest must be paid on the loan. The commitment is subject to a number
of terms and conditions set forth in the Commitment Letter including
completion by the Lender of its due diligence and the completion and execution
of the
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definitive loan documentation. The Company would use the proceeds of this
loan to repay the $4 million short term loan from the Nevada State Bank and
other outstanding indebtedness and for the completion of the construction of
the SportPark.
During 1997, the Company's operating activities provided $309,800 in
cash as compared to $680,600 used in operating activities the prior year. The
increase in cash provided was primarily a result of the Company's net income
of $220,700 in 1997 and an increase in accounts payable and accrued expenses
of $1,232,000.
During 1997, cash used in investing activities totalled $14,467,200 as
compared to $1,944,600 provided by investing activities during 1996. The
increased use of cash was a result of leasehold improvement expenditures
totalling $9,731,300, project development costs incurred in the amount of
$6,246,700, and preopening expenses of $702,800.
Cash provided by financing activities during 1997 totalled $8,515,300 as
compared to $4,442,900 provided by financing activities in 1996. The increase
was funded primarily by proceeds from debt financing from Callaway Golf and a
shareholder.
As of December 31, 1996 and 1995, the Company held cash and cash
equivalents of $5,818,100 and $125,100, respectively. Cash used in operating
activities in 1996 was $680,600. This compares to cash provided by operating
activities during 1995 of $661,200.
During the year ended December 31, 1996, the Company's principal source
of cash resulted from the sale of $5 million in Series A Convertible Preferred
Stock through a private placement.
Capital expenditures during the year ended December 31, 1996 related
primarily to the Company's on-going development efforts for the "All-American
SportPark" concept. Project development costs, both those expensed and
deferred, totaled $763,000 in 1996. In July 1996, the Company entered into a
lease for 65 acres of undeveloped land in Las Vegas, Nevada, which is the site
of the Company's first "All-American SportPark." As part of the lease
arrangements, the Company was required to post a refundable $500,000 deposit
with the lessor. This deposit will be applied against the minimum monthly
rental payments.
The Company's sources of working capital are its current cash balance
and cash flows from operations. The Company has, in the past, funded a
portion of its cash needs through loans from its parent corporation (Las Vegas
Discount Golf & Tennis, Inc.("LVDG")), however, any future loans from the
parent are likely to be limited. If the proposed merger with LVDG is
completed, the current assets and cash flow, if any, of LVDG will be available
to help fund the All-American SportPark. The Company does not expect to have
any significant capital expenditures in 1998 other than the development of the
SportPark with a total budgeted cost of $25.9 million of which $7.8 million
had been incurred through December 31, 1997.
RECENTLY ISSUED ACCOUNTING STATEMENTS
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130 - Reporting Comprehensive Income,
and No. 131 - Disclosures About Segments of an Enterprise and Related
Information. The Company will adopt the provisions of these new accounting
statements in 1998. Management believes that adoption of these provisions
will not have a material impact on the Company's reported financial position
or results of operations.
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YEAR 2000 COMPLIANCE
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result, date-
sensitive computer software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in major system failures or
miscalculations, and is generally referred to as the "Year 2000" problem. A
comprehensive review of the Company's computer systems has been completed and
an extensive program is currently in process to modify or replace those
systems that are not Year 2000 compliant. Management believes that the
Company's systems are compliant or will be compliant by mid-1999. All
maintenance and modification costs are being expensed as incurred, while the
cost of new software, when material, is being capitalized and amortized over
its expected useful life. The cost of the Year 2000 compliance program has
not been and is not anticipated to be material to the Company's financial
position or results of operations.
SAFE HARBOR PROVISION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report contains statements that are forward-looking, such as statements
relating to plans for future expansion and other business development
activities, as well as other capital spending, financing sources, the effects
of regulations and competition. Such forward-looking information involves
important risks and uncertainties that could significantly affect anticipated
results in the future and, accordingly, such results may differ from those
expressed in any forward-looking statements by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those relating
to development and construction activities, dependence on existing management,
leverage and debt service (including sensitivity to fluctuations in interest
rates), domestic or global economic conditions (including sensitivity to
fluctuations in foreign currencies), changes in federal or state tax laws or
the administration of such laws, changes in regulations and application for
licenses and approvals under applicable jurisdictional laws and regulations.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements are set forth on pages F-1 through F-24 hereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE.
No response required.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The Directors and Executive Officers of the Company are as follows:
NAME AGE POSITIONS AND OFFICES HELD
- ------------------ --- -------------------------------------------------
Vaso Boreta 65 Chairman of the Board
Ronald S. Boreta 35 President, Chief Executive Officer, Treasurer,
Secretary and Director
Robert R. Rosburg 71 Director
William Kilmer 58 Director
Motoharu Iue 60 Director
John A. Hoover, Jr. 43 General Manager of All-American SportParks
Kevin B. Donovan 35 Vice President of New Business Development
Charles W. Martin 50 Chief Financial Officer
Except for the fact that Vaso Boreta and Ronald Boreta are father and
son, respectively, there is no family relationship between any Director or
Officer of the Company.
In February 1998, a majority of the Board of Directors of the Company
established an audit committee whose members are William Kilmer and Robert
Rosburg, both of whom are independent Directors of the Company. The Company
presently has no compensation or nominating committee, but has agreed to
establish a compensation committee.
All Directors hold office until the next Annual Meeting of Shareholders.
The Callaway Golf Company ("Callaway Golf") has the right to designate a
person to be appointed to the Company's Board of Directors throughout the term
of the Company's agreement with Callaway Golf regarding the limited liability
company which was formed to operate the Callaway Golf Center[TM]. To date,
Callaway Golf has not designated anyone to be appointed to the Company's Board
of Directors.
Officers of the Company are elected annually by, and serve at the
discretion of, the Board of Directors.
The following sets forth biographical information as to the business
experience of each officer and director of the Company for at least the past
five years.
RONALD S. BORETA has served as President of the Company since 1992,
Chief Executive Officer since August 1994, and a Director since its inception
in 1984. He also served as an officer and director of the Company's Parent,
Las Vegas Discount Golf & Tennis, Inc., from 1988 until July 1994, and he
continues to serve as a director. He has been employed by the Company since
its inception in March 1984, with the exception of a 6-month period in 1985
when he was employed by a franchisee of the Company located in San Francisco,
California. Prior to his employment by the Company, Mr. Boreta was an
assistant golf professional at
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<PAGE>
San Jose Municipal Golf Course in San Jose, California, and had worked for two
years in the areas of sales and warehousing activities with a golf discount
store in South San Francisco, California. Mr. Boreta devotes 100% of his time
to the business of the Company.
VASO BORETA has served as Chairman of the Board of Directors since
August 1994, and has been an Officer and Director of the Company since its
formation in 1984. He has also been an officer and director of the Company's
Parent, Las Vegas Discount Golf & Tennis, Inc., since 1988. In 1974, Mr.
Boreta first opened a specialty business named "Las Vegas Discount Golf &
Tennis," which retailed golf and tennis equipment and accessories. He was one
of the first retailers to offer golf merchandise at a discount. He also
developed a major mail order catalog sales program from his original store.
Mr. Boreta continues to operate his original store, which has been moved to a
new location near the corner of Flamingo and Paradise roads in Las Vegas. Mr.
Boreta devotes approximately 10% of his time to the business of the Company,
and the balance to the Company's Parent and to operating his store.
ROBERT R. ROSBURG has served as a Director of the Company since August
1994, and has been a director of the Company's Parent, Las Vegas Discount Golf
& Tennis, Inc., since November 1989. Mr. Rosburg has been a professional
golfer since 1953. From 1953 to 1974 he was active on the Professional Golf
Association tours, and since 1974 he has played professionally on a limited
basis. Since 1975 he has been a sportscaster on ABC Sports golf tournament
telecasts. Since 1985 he has also been the Director of Golf for Rams Hill
Country Club in Borrego Springs, California. Mr. Rosburg received a
Bachelor's Degree in Humanities from Stanford University in 1948.
WILLIAM KILMER has served as a Director of the Company since August
1994, and has been a director of the Company's Parent, Las Vegas Discount Golf
& Tennis, Inc., since July 1990. Mr. Kilmer is a retired professional
football player, having played from 1961 to 1978 for the San Francisco
Forty-Niners, the New Orleans Saints and the Washington Redskins. Since 1978,
he has toured as a public speaker and also has served as a television analyst.
Mr. Kilmer received a Bachelor's Degree in Physical Education from the
University of California at Los Angeles.
MOTOHARU IUE has served as a Director of the Company since April 1997.
Mr. Iue has served as Chairman of the Board of Sanyo North America Corporation
("Sanyo") and President of Three Oceans Inc. ("Three Oceans") since October
1996. Mr. Iue previously served as President of Sanyo and as Chairman of the
Board of Three Oceans from 1992 to 1996 and still serves as Chief Executive
Officer of Sanyo and Three Oceans. From 1989 to 1992, he was Executive Vice
President of Tottori Sanyo Electric Co., Ltd. All three companies are
affiliates of Sanyo Electric Co., Ltd. ("Sanyo Electric"), and Three Oceans
Inc. is a shareholder of the Company. Mr. Iue has bee a director of Sanyo
Electric since 1977.
JOHN A. HOOVER, JR. has served as General Manager of All-American
SportParks since April 1995. From June 1993 until April 1995, he served as
Director of Operations of the MGM Grand Adventure Theme Park, a $120 million
theme park associated with the MGM Grand Hotel Resort in Las Vegas. From
January 1990 until June 1993, he served as operations manager for the Fiesta
Texas Theme Park in San Antonio, Texas, and from October 1986 until December
1990, he served as general manager for the Malibu Grand Prix/Castle Golf &
Games in San Antonio, Texas.
KEVIN B. DONOVAN has served as Vice President of New Business
Development since April 1994. Prior to joining the Company, from March 1992
to March 1994, he was President and Creative Director of Donovan Design
Agency, Dallas, Texas,
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which is engaged in designing corporate logos and graphics, and providing
marketing and package designs. From June 1989 to March 1992, he was
President, Chief Executive Officer and Creative Director for Donovan & Houston
Design For Retail, Dallas, Texas, which was engaged in providing design
services to retail oriented companies. From March 1986 to June 1989, Mr.
Donovan was Art Director and Creative Director for John Ryan & Co. Retail
Marketing Agency in Minneapolis, Minnesota, which was engaged in providing
design services to retail and banking companies. Mr. Donovan received a B.A.
Degree in Commercial Arts from St. Paul Technical College, St. Paul,
Minnesota, in 1983. He devotes his full time to the business of the Company.
CHARLES W. MARTIN has been Chief Financial Officer of the Company since
January 1998. From 1996 to January, 1998, Mr. Martin was Director of Finance
for St. Elizabeth Ann Seton Catholic Church in Las Vegas, Nevada, where he
handled accounting functions as well as budgetary matters including the budget
for a new $8.5 million elementary school to be built by the church. From 1994
to 1996, he served as a financial consultant in Las Vegas, Nevada. From 1992
to 1994, Mr. Martin was Vice President of Finance and Administration for
Weider Publishing, Woodland Hills, California, a print and electronic media
company. From 1989 to 1992, he was a financial consultant with Martin &
Martin, based in Encino, California, where he provided a full range of
services relating to financial systems; internal controls; financial
reporting; and other accounting related matters to companies in various
industries. Mr. Martin received a B.S. Degree in Business Administration
(Accounting) from Ohio State University in 1977. He devotes his full time to
the business of the Company.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer, beneficial owner of more than 10% of the Company's common
stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year, except that Ronald S.
Boreta, John A. Hoover, Jr. and Kevin B. Donovan, Executive Officers of the
Company, each filed late Form 4's reporting stock options they received; and
Vaso Boreta, Ronald S. Boreta, John A. Hoover, Jr., Kevin B. Donovan, William
Kilmer, and Robert R. Rosburg each filed Form 5's late reporting the
cancellation and reissuance of stock option.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information regarding the executive
compensation for the Company's President and each other executive officer who
received compensation in excess of $100,000 for the years ended December 30,
1996, 1995 and 1994 from the Company:
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<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER)PAYOUTS SATION
- ------------------ ---- -------- -------- ------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronald S. Boreta, 1997 $101,000 $100,000 $58,183 -- 435,000 -- $4,231
<FN1> <FN2>
President and CEO 1996 $120,000 $ 5,500 $39,160 -- 325,000 -- $8,265
<FN1> <FN2>
1995 $100,000 -0- $19,071 -- -0- -- -0-
<FN1>
Charles Hohl, 1996 $100,000 $22,000 $10,000 -- -0- -- -0-
Executive Vice <FN4>
President<FN3> 1995 $100,000 -0- $ 2,346 -- -0- -- -0-
<FN4>
Kevin B. Donovan, 1997 $117,166 $25,000 $ 6,212 -- 10,000 -- -0-
Vice President <FN5>
of New Business
Development
- ---------------
<FN>
<FN1>
Represents amounts paid for country club memberships for Ronald S. Boreta, an
automobile for his personal use, and contributions made by the Company to
retirement plans on his behalf. For 1997, these amounts were $16,393 for club
memberships, $16,790 for an automobile and $25,000 to the Company's
Supplemental Retirement Plan.
<FN2>
Represents premiums paid on a life insurance policy for Ronald S. Boreta's
benefit.
<FN3>
Mr. Hohl's employment as Executive Vice President ended on February 26, 1997.
<FN4>
Represents amount contributed to the Company's retirement plan on behalf of
Mr. Hohl.
<FN5>
Represents $4,712 paid for an automobile provided for Mr. Donovan's personal
use and $1,500 contributed to a retirement plan on behalf of Mr. Donovan.
</FN>
</TABLE>
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR - INDIVIDUAL GRANTS
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PRICE ($/SH) DATE
- ---------------- ------------ ------------ ----------- ----------
Ronald S. Boreta 110,000 24.1% $3.0625 8-7-1999
125,000 27.4% $3.0625 4-16-2001
200,000 43.9% $3.0625 4-24-2001
Kevin B. Donovan 10,000 2.2% $3.0625 4-16-2001
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS MONEY OPTIONS/
ON SARs AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------- -------- -------- -------------- ---------------
Ronald S. Boreta -0- -0- 435,000 / 0 $0 / $0
Kevin B. Donovan -0- -0- 10,000 / 0 $0 / $0
EMPLOYMENT AGREEMENTS
Effective August 1, 1994, the Company entered into an employment
agreement with Ronald S. Boreta, the Company's President and Chief Executive
Officer, pursuant to which he receives a base salary of $100,000 per year plus
annual increases as determined by the Board of Directors. His salary was
increased to $120,000 for the year ended December 31, 1996 and returned to
$100,000 for the year ended December 31, 1997. The employment agreement is
automatically extended for additional one year periods unless 60 days' notice
of the intention not to extend is given by either party. In addition to his
base salary, Ronald S. Boreta also will receive a royalty equal to 2% of all
gross revenues directly related to the All-American SportPark and Slugger
Stadium concepts. However, such royalty is only payable to the extent that
the Company's annual consolidated income before taxes after the payment of the
royalty exceeds $1,000,000. Ronald S. Boreta also receives the use of an
automobile, for which the Company pays all expenses, and full medical and
dental coverage. The Company also pays all dues and expenses for membership
at two local country clubs at which Ronald S. Boreta entertains business
contacts for the Company. Ronald S. Boreta has agreed that for a period of
three years from the termination of his employment agreement that he will not
engage in a trade or business similar to that of the Company.] In the event
of a change of more than 25% of the beneficial ownership of the Company or its
parent, the termination date is extended from December 31, 1996 to December
31, 1998, and it may be extended up to an additional five years under certain
conditions.
In June 1997, a majority of the Company's Board of Directors awarded a
$100,000 bonus to Ronald S. Boreta for his extraordinary services related to
the raising of capital and development of the Company's Las Vegas SportPark.
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<PAGE>
Effective October 1, 1996, the Company entered into a one year employment
agreement with Kevin B. Donovan, pursuant to which he receives a base salary
of $100,000 per year. In addition to his base salary, Mr. Donovan received a
$25,000 bonus upon the opening of a portion of the All-American SportPark, and
receives a commission of 5% of all sponsorship sales related to the
All-American SportPark. Mr. Donovan also receives the use of an automobile
provided by the Company. Mr. Donovan's employment agreement ended on
September 30, 1997, but his employment has continued on the same terms since
that date.
Effective August 8, 1994, the Company entered into an employment
agreement with Charles L. Hohl, the Company's Executive Vice President,
Franchise Systems, pursuant to which he received a base salary of $100,000 per
year plus annual increases as determined by the Board of Directors. This
employment agreement ended on February 26, 1997, in connection with the sale
of the Company's franchise business and the termination of Mr. Hohl's
employment.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company do not receive any fees
for Board meetings they attend but are entitled to be reimbursed for
reasonable expenses incurred in attending such meetings.
STOCK OPTION PLAN
During July 1994, the Board of Directors adopted a Stock Option Plan
(the "Plan"). The Plan authorizes the issuance of options to purchase up to
300,000 shares of the Company's Common Stock.
The Plan allows the Board to grant stock options from time to time to
employees, officers, directors and consultants of the Company. The Board has
the power to determine at the time the option is granted whether the option
will be an Incentive Stock Option (an option which qualifies under Section 422
of the Internal Revenue Code of 1986) or an option which is not an Incentive
Stock Option. Vesting provisions are determined by the Board at the time
options are granted. The option price for any option will be no less than the
fair market value of the Common Stock on the date the option is granted.
Since all options granted under the Plan must have an exercise price no
less than the fair market value on the date of grant, the Company will not
record any expense upon the grant of options, regardless of whether or not
they are incentive stock options. Generally, there will be no federal income
tax consequences to the Company in connection with Incentive Stock Options
granted under the Plan. With regard to options that are not Incentive Stock
Options, the Company will ordinarily be entitled to deductions for income tax
purposes of the amount that option holders report as ordinary income upon the
exercise of such options, in the year such income is reported.
In August 1994, the Board of Directors granted stock options to the
following persons who were then Officers and Directors of the Company, to
purchase shares of the Company's Common Stock at $5.00 per share. These
options expire on August 8, 1999. On June 9, 1997, each of these options
(except Charles Hohl's) were reissued at an exercise price of $3.0625.
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<PAGE>
NAME SHARES SUBJECT TO OPTION
----------------- ------------------------
Vaso Boreta 110,000
Ronald Boreta 110,000
Charles Hohl 60,000(1)
Glenn Raynes 10,000
Robert R. Rosburg 5,000
William Kilmer 5,000
-------
Total 300,000
- --------------
(1) Mr. Hohl's options vest in increments of 20,000 each year beginning on
August 8, 1995.
In April 1996, the Company's Board of Directors approved increases in
the number of shares of Common Stock which may be issued under the Plan from
300,000 to 700,000, subject to approval by the Company's shareholders within
one year. Also in April 1996, the Company's Board of Directors granted stock
options as indicated below.
RELATIONSHIP SHARES SUBJECT EXERCISE
NAME TO THE COMPANY TO OPTION PRICE<FN3>
- ---------------- -------------------- -------------- --------
Joel Rubenstein Consultant 10,000 $5.00
Ronald S. Boreta Officer and Director 125,000 $4.75
Ronald S. Boreta Officer and Director 200,000(1) $4.625
Kevin B. Donovan Officer 10,000 $4.75
John Hoover Officer 10,000 $4.75
Robert Finley Employee 1,000 $4.75
Ted Abbruzzese Consultant 10,000 $4.75
Jeff Gordon Consultant 10,000(2) $4.75
Hal Price Consultant 1,000 $4.75
___________________
(1) This option was not to vest until the Company completed a transaction
with a major business or investor that made it probable that the Company will
be able to pursue its plan of building and operating Sportparks. This
condition was met in September 1996 as a result of the investment by Three
Oceans, Inc. of $5,000,000 in the Company.
(2) This option is currently vested as to 5,000 shares and will vest as to an
additional 2,500 on April 24, 1998, and April 24, 1999.
(3) On June 9, 1997, each of these options were reissued for the same number
of shares at a new exercise price of $3.0625 per share.
401(k) PLAN
The Company's Parent maintains a 401(k) employee retirement and savings
program (the "401(k) Plan") which covers the Company's employees. Under the
401(k) Plan, an employee may contribute up to 15% of his or her gross annual
earnings, subject to a statutory maximum, for investment in one or more funds
identified under the plan. The Company's Parent makes matching contributions
equal to 25% of participants' contributions.
SUPPLEMENTAL RETIREMENT PLAN
In November 1996, the Company and its majority shareholder established a
Supplemental Retirement Plan, pursuant to which certain employees selected by
the Company's Chief Executive Officer receive benefits based on the amount of
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<PAGE>
compensation elected to be deferred by the employee and the amount of
contributions made on behalf of the employee by the Company. Company
contributions to the Supplemental Retirement Plan are immediately vested for
Category I employees, and vest 20% per year of employment for Category II
employees. Vested amounts under the Supplemental Retirement Plan are paid out
over 5 to 20 years upon retirement, disability, death or termination of
employment.
For 1997, Ronald S. Boreta (the President of the Company) was
designated as a Category I employee. The Company made contributions to the
Supplemental Retirement Plan on behalf of Ronald S. Boreta in the amount of
$25,000.
The Company's Board of Directors has not yet determined the amounts, if
any, which will be contributed to the Supplemental Retirement Plan for 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of April 5, 1998, the stock ownership
of each person known by the Company to be the beneficial owner of five percent
or more of the Company's Common Stock, each Officer and Director individually,
and all Directors and Officers of the Company as a group. Except as noted,
each person has sole voting and investment power with respect to the shares
shown.
AMOUNT AND
NAME AND ADDRESS NATURE OF BENE- PERCENT
OF BENEFICIAL OWNERS FICIAL OWNERSHIP OF CLASS
- ------------------------- --------------- --------
Las Vegas Discount Golf &
Tennis, Inc.(1) 2,000,000 66.7%
Suite 10
5325 S. Valley View Blvd
Las Vegas, Nevada 89118
Vaso Boreta 110,000(2) 3.5%
Suite 10
5325 S. Valley View Blvd.
Las Vegas, Nevada 89118
Ronald S. Boreta 435,000(2) 14.5%
Suite 10
5325 S. Valley View Blvd.
Las Vegas, Nevada 89118
Robert R. Rosburg 5,000(2) 0.2%
49-425 Avenida Club La Quinta
La Quinta, California 92253
William Kilmer 5,000(2) 0.2%
1500 Sea Breeze Boulevard
Ft. Lauderdale, Florida 33316
Motoharu Iue 0(3) 0%
666 - 5th Avenue
New York, New York 10103
Three Oceans Inc. 750,000(4) 20.0%
2001 Sanyo Avenue
San Diego, California 92173
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<PAGE>
All Directors and Officers 575,000(5) 16.1%
as a Group (7 persons)
___________________
(1) Las Vegas Discount Golf & Tennis, Inc. is a publicly-held corporation of
which Vaso Boreta is President, Director and a principal shareholder; Ronald
S. Boreta is a Director and a principal shareholder; and Robert R. Rosburg and
William Kilmer are Directors. In addition, John Boreta, a son of Vaso Boreta
and Boreta Enterprises Ltd., a limited liability company owned by Vaso, Ronald
and John Boreta, are principal shareholders of Las Vegas Discount Golf &
Tennis, Inc. The following sets forth the percentage ownership beneficially
held by such persons in Las Vegas Discount Golf & Tennis, Inc.:
Vaso Boreta 31.5%
Ronald S. Boreta 28.2%
Robert Rosburg 0.1%
William Kilmer 0.1%
John Boreta 17.8%
Boreta Enterprises Ltd. 22.4%
(2) Represents shares underlying options exercisable within 60 days held by
the named person. Does not include shares held by Las Vegas Discount Golf &
Tennis, Inc. of which such person is an Officer, Director and/or principal
shareholder.
(3) Mr. Iue is President of Three Oceans, Inc. and the shares held by Three
Oceans, Inc. are not being treated as beneficially owned by Mr. Iue.
(4) Represents 500,000 shares of Common Stock issuable upon the conversion of
Series A Convertible Preferred Stock held by Three Oceans Inc. and 250,000
shares underlying stock options held by Three Oceans, Inc.
(5) Includes shares beneficially held by the five named Directors, 10,000
shares underlying stock options held by Kevin B. Donovan and 10,000 shares
underlying options held by John Hoover, Executive Officers of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CERTAIN TRANSACTIONS
Las Vegas Discount Golf & Tennis, Inc. ("LVDG"), a publicly-held
corporation, owns 66.7% of the Company's outstanding Common Stock. Vaso
Boreta, the Company's Chairman of the Board, is an Officer, Director and
principal shareholder of LVDG. Ronald S. Boreta, President and a Director of
the Company, is a Director and principal shareholder of LVDG. Robert S.
Rosburg and William Kilmer, Directors of the Company, are also Directors of
LVDG. In addition, John Boreta, the son of Vaso Boreta and the brother of
Ronald S. Boreta, is a principal shareholder of LVDG.
Until August 1, 1994, the Company and LVDG shared the expenses of
jointly-used facilities and administrative and accounting personnel on a 50-50
basis under a verbal agreement. Since August 1, 1994, the Company and LVDG
have allocated these costs on a pro rata basis based on which entity receives
the benefit of the particular expense. With respect to the lease for the
office and warehouse facilities, starting July 1, 1996 LVDG paid 33% of the
monthly lease payments and the Company paid 67%.
Effective August 1, 1994, LVDG also agreed to purchase, warehouse and
make available to the Company and its franchisees certain merchandise. In
exchange,
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<PAGE>
the Company agreed to pay $350,000 from the proceeds of its December 1994
initial public offering to retire certain bank indebtedness described below.
Through February 1997, certain facilities used by the Company and LVDG
were leased by the Company from Vaso Boreta, the Company's Chairman of the
Board. LVDG leased approximately 15,500 square feet of warehouse space and
6,000 square feet of office space from Mr. Boreta at a base monthly rent of
$13,000. The Board of Directors of the Company believes that the terms of
this lease were at least as favorable as those which could have been obtained
from an unaffiliated entity.
Effective October 1, 1990, a franchise agreement with Vaso Boreta, the
Company' Chairman of the Board, was mutually terminated, and a new agreement
was entered into with him pursuant to which he was permitted to operate a Las
Vegas Discount Golf & Tennis store in Las Vegas, Nevada, which is not a
franchise store. The agreement also provided that Mr. Boreta may purchase
certain merchandise for his store at the same cost as the Company, use the
facilities and personnel of the Company on a limited basis, and operate a
limited mail order business from his store. In exchange for these rights, Mr.
Boreta paid the Company a fee of $3,000 per month. This agreement with the
Company was terminated on July 31, 1994. Mr. Vaso Boreta now has a similar
agreement with Las Vegas Discount Golf & Tennis, Inc. As a result of this
arrangement, Mr. Vaso Boreta did not pay any royalties to the Company even
though he may have received a benefit from the Company's activities including
any advertising conducted by the Company.
Prior to becoming the Company's Vice President of New Business
Development in April 1994, Kevin B. Donovan was President and a major
shareholder of Donovan Design Agency, Inc., which performed certain design
services for the Company. During 1993, Donovan Design Agency billed the
Company $136,000 for such services of which $59,000 had been paid as of
December 31, 1993. During 1994, Donovan Design Agency billed the Company
$9,300 for additional services, and the Company paid $32,000 on its account.
As of December 31, 1995 and 1994, the Company owed Donovan Design Agency
$54,300. During 1996, the amount due was reduced to $36,000 and this amount
was paid. Kevin B. Donovan presently owns all of the outstanding stock of
Donovan Design Agency, however, this receivable has been assigned to an entity
with which Mr. Donovan has no affiliation.
During 1997, Vaso Boreta, the Company's Chairman of the Board, loaned
the Company a total of $600,000. This loan is evidenced by a demand note
bearing interest at 10% per annum.
As indicated above, the Company has extensive transactions with LVDG,
LVDG's other subsidiaries, and Voss Boreta's Las Vegas store. As of December
31, 1996, the Company was owed $461,500 by LVDG and its subsidiaries. This
amount was completely paid off during the six months ended June 30, 1997.
During September 1997, a majority of the Board of Directors of the
Company agreed to sell the Company's rights to the St. Andrews name to Boreta
Enterprises, Ltd. for a $20,000 two-year promissory note since the Company has
committed all of its efforts to the development and management of the
All-American SportPark and no longer intends to engage in the business of
selling golf equipment or apparel.
A majority of the Company's Board of Directors believes that the terms of
the above transactions were on terms no less favorable to the Company than if
the transactions were with unaffiliated third parties.
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<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 3. EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- -------------------------- ------------------------------
2 Agreement for the Purchase Incorporated by reference to
and Sale of Assets, as Exhibit 10 to the Registrant's
amended Current Report on Form 8-K
dated February 26, 1997
3.1 Restated Articles of Incorporated by reference to
Incorporation Exhibit 3.1 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
3.2 Certificate of Amendment Incorporated by reference to
to Articles of Incorporation Exhibit 3.2 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
3.3 Revised Bylaws Incorporated by reference to
Exhibit 3.3 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
10.1 Employment Agreement with Incorporated by reference to
Ronald S. Boreta Exhibit 10.1 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
10.2 Stock Option Plan Incorporated by reference to
Exhibit 10.2 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
10.3 Ground Lease with Summa Incorporated by reference to
Corporation Exhibit 10.3 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
10.4 Agreement between the Incorporated by reference to
Company and Las Vegas Exhibit 10.4 to the Registrant's
Discount Golf & Tennis, Form SB-2 Registration State-
Inc. ment (No. 33-84024)
10.5 License Agreement between Incorporated by reference to
The Company and Las Vegas Exhibit 10.5 to the Registrant's
Discount Golf & Tennis, Form SB-2 Registration State-
Inc. ment (No. 33-84024)
10.6 Employment Agreement with Incorporated by reference to
Kevin Donovan Exhibit 10.6 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
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<PAGE>
10.7 Employment Agreement with Incorporated by reference to
Charles Hohl Exhibit 10.7 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
10.8 Lease Agreement with A&R Incorporated by reference to
Management and Development Exhibit 10.8 to the Registrant's
Co., et al., and Sublease Form SB-2 Registration State-
to Las Vegas Discount Golf ment (No. 33-84024)
& Tennis, Inc.
10.9 Lease Agreement with Vaso Incorporated by reference to
Boreta, as amended, and Exhibit 10.9 to the Registrant's
Assignment to Las Vegas Form SB-2 Registration State-
Discount Golf & Tennis, Inc. ment (No. 33-84024)
10.10 Letter Agreement with Oracle Incorporated by reference to
One Partners, Inc. Exhibit 10.10 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
10.11 Promissory Note to Vaso Incorporated by reference to
Boreta Exhibit 10.11 to the Registrant's
Form SB-2 Registration State-
ment (No. 33-84024)
10.12 Agreement with Major League Incorporated by reference to
Baseball Properties, Inc. Exhibit 10.12 to the Registrant's
Form 10-KSB for the year ended
December 31, 1995
10.13 License Agreement with Incorporated by reference to
National Association for Exhibit 10.13 to the Registrant's
Stock Car Auto Racing, Inc. Form 10-KSB for the year ended
dated August 1, 1995 December 31, 1995
10.14 Concept Development and Incorporated by reference to
Trademark License Agreement Exhibit 10.14 to the Registrant's
with Callaway Golf Company Form 10-KSB for the year ended
Dated May 23, 1995 December 31, 1995
10.15 Investment Agreement with Incorporated by reference to
Three Oceans, Inc. Exhibit 10.1 to Registrant's
Form 8-K dated July 29, 1996
10.16 Lease Agreement between Incorporated by reference to
Urban Land of Nevada and Exhibit 10.16 to the Registrant's
All-American SportPark, Form SB-2 Registration Statement
Inc. (No. 33-84024)
10.17 Lease Agreement between Incorporated by reference to
Urban Land of Nevada and Exhibit 10.17 to the Registrant's
All-American Golf Center, Form SB-2 Registration Statement
LLC (No. 33-84024)
10.18 Operating Agreement for Incorporated by reference to
All-American Golf, LLC, Exhibit 10.18 to the Registrant's
a limited liability Form SB-2 Registration Statement
Company (No. 33-84024)
-32-
<PAGE>
10.19 Employment Agreement with Incorporated by reference to
Kevin Donovan dated Exhibit 10.19 to the Registrant's
October 8, 1996 Form SB-2 Registration Statement
(No. 33-84024)
10.20 Lease and Concession Agree- Incorporated by reference to
ment with Sportservice Exhibit 10.20 to the Registrant's
Corporation Form SB-2 Registration Statement
(No. 33-84024)
10.21 Sponsorship Agreement Incorporated by reference to
with Pepsi-Cola Company Exhibit 10.21 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
10.22 Agreement and Plan of Incorporated by reference to
Merger dated January 20, Exhibit 10.22 to the Registrant's
1998 between the Company Form SB-2 Registration Statement
and Las Vegas Discount (No. 33-84024)
Golf & Tennis, Inc.
10.23 Promissory Note of All- Filed electronically herewith
American SportPark, Inc.
for $3 million payable to
Callaway Golf Company
10.24 Guaranty of Note to Filed electronically herewith
Callaway Golf Company
10.25 Forbearance Agreement dated Filed electronically herewith
March 18, 1998 with Callaway
Golf Company
10.26 Amendment No. 2 to License Filed electronically herewith
Agreement with National
Assoc. for Stock Car Auto
Racing, Inc.
21 Subsidiaries of the Incorporated by reference to
Registrant Exhibit 21 to the Registrant's
Form SB-2 Registration Statement
(No. 33-84024)
27 Financial Data Schedule Filed electronically herewith
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the
quarter ended December 31, 1997.
-33-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Saint Andrews Golf Corporation:
We have audited the accompanying consolidated balance sheets of SAINT ANDREWS
GOLF CORPORATION (a Nevada Corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Saint Andrews Golf
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1e to
the consolidated financial statements, the Company has suffered recurring
losses from operations, has a working capital deficiency of $3.1 million at
December 31, 1997, and insufficient borrowing capacity to fund the completion
of its All-American SportPark complex which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1e. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
March 27, 1998 (except with respect
to the matter discussed in Note 17
as to which the date is May 5, 1998)
F-1
<PAGE>
SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 176,000 $5,818,100
Accounts receivable 67,100 -
Due from affiliated store 102,700 5,400
Due from officer 3,000 13,000
Receivable from related entities - 461,500
Prepaid expenses and other 30,600 17,000
Preopening expenses, net 99,800 -
---------- ---------
Total current assets 479,200 6,315,000
Leasehold improvements and equipment, net 9,981,400 83,800
Note receivable related party 20,000 -
Deposit for land lease 433,700 500,000
Project development costs 7,850,100 1,603,400
Other assets 29,300 -
Net assets of discontinued operations - 119,500
---------- ---------
$18,793,700 $8,621,700
========== =========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS-DECEMBER 31, 1997 AND 1996
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
1997 1996
---------- ----------
CURRENT LIABILITIES:
Bank line of credit $ 668,400 $ -
Current portion of notes payable 500,000 -
Current portion of obligations under
capital leases 72,200 -
Accounts payable and accrued expenses 1,973,600 741,600
Due to Affiliated Store 33,200 -
Payable to Related Entities 371,100 -
Deferred franchise fees - 62,500
--------- ---------
Total current liabilities 3,618,500 804,100
--------- ---------
Note payable to shareholder 600,000 -
Notes payable 5,250,000 -
Obligation under capital leases, net
of current portion 211,200 -
Deferred income 516,700 91,000
Minority interest 650,000 -
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000
shares authorized, no shares issued and
outstanding - -
Series A Convertible Preferred stock, $1
par value, 500,000 shares authorized and
outstanding at December 31, 1997 and 1996 4,740,000 4,740,000
Options issued in connection with Series A
Convertible Preferred Stock to purchase
250,000 shares of Common stock 260,000 260,000
Common stock, $.001 par value, 10,000,000
shares authorized, 3,000,000 shares
issued and outstanding at December 31,
1997 and 1996 3,000 3,000
Additional paid-in-capital 3,333,300 3,333,300
Common stock purchase warrants, class A,
authorized and outstanding-1,000,000
warrants at December 31, 1997 and 1996 187,500 187,500
Accumulated deficit (576,500) (797,200)
--------- ---------
Total shareholders' equity 7,947,300 7,726,600
--------- ---------
$ 18,793,700 $ 8,621,700
============ ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
REVENUE: ---------- --------
Callaway Golf Center $ 321,700 $
Management Fee 16,100 -
Other 49,400 25,700
---------- --------
Total Revenue 387,200 25,700
COST OF REVENUE:
Callaway Golf Center 570,300 -
----------- --------
Gross Profit (183,100) 25,700
OPERATING EXPENSES:
Selling, general and administrative 878,000 294,800
Depreciation and amortization 138,700 10,800
SportPark development costs 255,100 207,000
Preopening expenses 603,000 -
--------- ---------
1,874,800 512,600
OPERATING LOSS (2,057,900) (486,900)
Interest income, net 94,500 65,800
--------- ---------
Loss from continuing operations before
income taxes and minority interest (1,963,400) (421,100)
Provision for income taxes - -
Loss from continuing operations before --------- ---------
minority interest (1,963,400) (421,100)
Minority interest 100,000 -
DISCONTINUED OPERATIONS:
Loss from operations of franchise business
disposed of (no income taxes were recorded
in 1997 or 1996) (39,300) (329,100)
Gain on disposal of franchise operations
(net of applicable income taxes of
$450,000) 2,123,400 -
--------- --------
Income (loss) from discontinued operations 2,084,100 (329,100)
--------- --------
Net Income (Loss) $ 220,700 $(750,200)
========= =========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(Continued)
1997 1996
INCOME (LOSS) PER SHARE: ------ ------
Basic:
Loss from continuing operations $(.63) $(.14)
Income (loss) from discontinued operations .70 (.11)
------ ------
$ .07 $(.25)
====== =====
Diluted:
Loss from continuing operations $(.54) $(.14)
Income (loss) from discontinued operations .60 (.11)
----- -----
$ .06 $(.25)
===== =====
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
RETAINED
COMMON COMMON EARNINGS
STOCK ADDITIONAL STOCK (ACCUMU-
PREFERRED PURCHASE COMMON PAID-IN PURHASE LATED) TOTAL
STOCK OPTIONS STOCK CAPITAL WARRANTS DEFICIT EQUITY
---------- -------- ------ ---------- -------- --------- ----------
December
31, 1995 $ - $ - $3,000 $3,495,300 $187,500 $ (47,000)$3,638,800
Issuance of
Series A
Convertible
Preferred
Stock 4,740,000 - - (162,000) - - 4,578,000
Issuance of
Common Stock
Purchase Op-
tions in Con-
nection with
Series A Con-
vertible Pre-
ferred Stock - 260,000 - - - - 260,000
Net loss - - - - - (750,200) (750,200)
---------- -------- ------ ---------- -------- --------- ----------
Balance,
December 31,
1996 4,740,000 260,000 3,000 3,333,300 187,500 (797,200) 7,726,600
Net income - - - - - 220,700 220,700
---------- -------- ------ ---------- -------- --------- ----------
Balance,
December 31,
1997 $4,740,000 $260,000 $3,000 $3,333,300 $187,500 $(576,500)$7,947,300
========== ======== ====== ========== ======== ========= ==========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 220,700 $ (750,200)
Adjustment to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Minority interest (100,000)
Depreciation expense 138,700 10,800
Preopening expenses 603,000 -
Gain on disposition of trademark rights (20,000) -
Gain on disposal of franchise operations
net of income taxes (2,123,400) -
Amortization of land lease 66,300 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (67,100) 400,600
Decrease in inventories - 56,900
Decrease (increase) in due from officer 10,000 (13,000)
Increase in prepaid expenses and other (13,600) (12,700)
Increase (decrease) in accounts payable
and accrued expenses 1,232,000 (349,800)
(Decrease) increase in deferred
franchise fees (62,500) 2,500
Increase (decrease) in deferred income 425,700 (25,700)
---------- ----------
Net cash provided by (used in)
operating activities 309,800 (680,600)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from sale of franchise
business and other fixed assets 2,242,900 -
Project development costs (6,246,700) (556,400)
Land lease deposit - (500,000)
(Increase) decrease in other assets (29,300) 1,000
Reimbursement from lease termination - 3,000,000
Leasehold improvements expenditures (9,731,300) -
Preopening expenses (702,800) -
---------- ----------
Net cash (used in) provided by investing
activities (14,467,200) 1,944,600
---------- ----------
The accompanying notes are an integral part of these financial statements.
(Continued)
F-7
<PAGE>
SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(Continued)
1997 1996
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) to Affiliate Store and
Related Entities 768,500 (409,000)
Net proceeds from issuance of preferred
stock and options to purchase Common Stock - 4,838,000
Proceeds from bank line of credit 668,400 -
Proceeds from notes payable and note
payable to shareholder 6,350,000 -
Principal payments on capital leases (21,600) -
Contribution from minority interest 750,000 -
--------- ---------
Net cash provided by
financing activities: 8,515,300 4,420,000
--------- ---------
NET (DECREASE)INCREASE IN CASH
AND CASH EQUIVALENTS (5,642,100) 5,693,000
CASH AND CASH EQUIVALENTS,
Beginning of year 5,818,100 125,100
---------- ---------
CASH AND CASH EQUIVALENTS,
End of year $ 176,000 $ 5,818,100
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
1997 1996
---------- ---------
Cash paid for:
Interest $ 122,100 $ 4,000
Income taxes $ 338,000 $ -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
1997 1996
---------- ---------
Equipment financed through
capital leases $ 305,000 $ -
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
SAINT ANDREWS GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATIONAL STRUCTURE AND BASIS OF PRESENTATION
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Saint Andrews Golf Corporation
("SAGC"), a Nevada corporation, include the accounts of SAGC and its
subsidiaries, All-American SportPark Inc., a Nevada corporation and All-American
Golf, LLC, a California limited liability company (collectively the
"Company"). All significant inter-company accounts and transactions have been
eliminated.
b. COMPANY BACKGROUND AND PRIMARY BUSINESS ACTIVITIES
Until December 13, 1994, Saint Andrews Golf Corporation was a wholly-owned
subsidiary of Las Vegas Discount Golf & Tennis, Inc. ("LVDG"). On December
13, 1994, the Company completed an initial public offering of 1,000,000 Units
(representing one-third of the post offering shares outstanding) at a price of
$4.50 per Unit, each Unit consisting of one share of common stock and one
Class A Warrant. The net proceeds of this offering were $3,683,800. Two
Class A Common Stock Purchase Warrants entitle the holders to purchase one
share of the Company's common stock for $6.50 per share. The Warrants
originally expired December 13, 1996, however, the Company is extending the
expiration date of the warrants until written communication is sent to warrant
holders that fully describes the impact of the proposed merger of the Company
as described in Note 1(d). LVDG currently owns 66-2/3% of the Company's
outstanding common stock.
The Company's Chairman owns 100 percent of the original Las Vegas Discount
Golf & Tennis location opened in Las Vegas, Nevada in 1974. This store is
referred to herein as the "Affiliated Store" and operated under an agreement
with Las Vegas Discount Golf & Tennis, Inc. ("LVDG") prior to the sale of
certain assets as more fully described in note 1 (c).
During July 1994, the Company established a wholly-owned subsidiary, All-
American SportPark, Inc. which will operate the Company's All-American
SportParks.
On June 13, 1997 the Company and Callaway Golf Company ("Callaway") formed the
All-American Golf, LLC to construct, manage and operate the "Callaway Golf
Center", a premier golf facility at the site of the All-American SportPark.
The Company contributed $3.0 million for 80 percent of the members' units of
the LLC while Callaway purchased the remaining 20 percent for $750,000. The
minority interest presented in the accompanying financial statements
represents Callaway's interest in All-American Golf, LLC. The Company manages
the driving range, golf course and tenant facilities in the clubhouse for a
fee of five percent of gross revenues pursuant to the All-American Golf
Operating Agreement.
The Company's current operations consist of the development and operation of
sport-oriented theme parks under the name "All-American SportPark". The
Company's concept of a sport-oriented theme park consists of a baseball-batting
stadium, car-racing tracks, video arcade, retail and restaurant
facilities and a golf facility named "Callaway Golf Center". The golf
facilities will be comprised of an executive golf course, driving range,
putting course, clubhouse and training center. The total costs for the
Callaway Golf Center are approximately $10.1 million included in Leasehold
Improvements. Callaway is responsible for reimbursing the Company for
approximately 25 percent of expenditures in excess of the original
construction budget of $9.0 million. The
F-9
<PAGE>
"Callaway Golf Center" for the Las Vegas, Nevada facility commenced operations
on October 1, 1997.
c. DISCONTINUED OPERATIONS
On February 26, 1997, Las Vegas Discount Golf & Tennis, Inc. and the Company
completed the sale of certain of their assets and transferred certain
liabilities to an unrelated buyer who has incorporated under the name Las
Vegas Golf & Tennis, Inc. in a transaction whose terms were substantially in
accordance with the "Agreement for the Purchase and Sale of Assets". The
total consideration received was $5.3 million ($1.4 million of which was
attributed to net assets held for sale) of which $4.6 million was paid in
cash, $264,000 was received in the form of a short-term receivable, $200,000
was placed in escrow pending the accounting for inventory and trade payables,
and $200,000 was placed in escrow for two years to cover potential
indemnification obligations. Of the total consideration received,
approximately $2,750,000 in cash was allocated to SAGC. The $264,000 note and
$200,000 in short term escrow were collected in 1998 by LVDG.
This transaction resulted in the disposal of the Company's franchise business.
The agreement also provides for the assignment of all franchiser rights under
existing franchise agreements. Furthermore, the Company assigned all trade
names and trademarks associated with the business. The agreement also
includes a covenant not to compete which prohibits the Company, and its
officers and directors from engaging in the ownership or operation of
franchised retail golf equipment outlets within the continental United States.
Certain exemptions were granted by the purchaser to Boreta Enterprises, Ltd.,
a related entity owned by the President of the Company and the President of
Las Vegas Discount Golf & Tennis, Inc. with respect to the Company's right to
own or operate retail golf equipment outlets in connection with Saint Andrews
Golf Corporation's All-American SportPark.
The sale of all assets, liabilities and rights related to the franchise
business have been presented as "Discontinued Operations" in the accompanying
balance sheets and statements of operations as of the years ended December 31,
1997 and 1996.
Assets and liabilities of the Company's franchise business, which were
disposed of on February 26, 1997 consisted of the following on December 31:
1996
--------
Accounts receivable, net of allowance of $111,400 $270,600
Prepaid and other assets 10,500
Property, plant and equipment, net 6,000
-------
Total assets 287,100
Accounts payable 75,600
Accrued liabilities 32,000
Deferred franchise fees 60,000
-------
Net assets to be disposed of $119,500
========
Revenues related to discontinued operations totaled $156,000 and $1,424,000
for the years ended December 31, 1997 and 1996, respectively.
F-10
<PAGE>
d. PROPOSED MERGER WITH LAS VEGAS DISCOUNT GOLF & TENNIS, INC.
On January 20, 1998, the officers of the Company and LVDG executed a merger
agreement pursuant to which the Company would merge with and into LVDG which
is intended to constitute a tax-free plan of reorganization. As a result, the
separate corporate existence of the Company would cease and LVDG would change
the name of LVDG to All-American SportPark, Inc. to reflect the primary
business of the surviving corporation.
Conversion of Securities
At the effective date of the merger each share of the Company's Common Stock
issued and outstanding immediately prior to the effective date (except for
shares of the Company's Common Stock held by LVDG) will be converted into 2.4
shares of LVDG common Stock. Each share of the Company's Series A Preferred
Stock will be converted into 2.4 shares of LVDG Preferred Stock, and each
share of the Company's Common Stock held by LVDG immediately prior to the
effective date and all rights in respect thereof will be canceled. This would
result in the current shareholders of the Company (other than LVDG) owning
approximately 38.2% of the surviving corporation, assuming that there are no
dissenting shareholders.
Options and Warrants to Purchase the Company's Common Stock
At the effective date each option or warrant granted by the Company to
purchase shares of the Company's Common Stock which is outstanding and
unexercised immediately prior to the effective date will be assumed by LVDG
and converted into an option or warrant to purchase shares of LVDG common
stock in such number and at such exercise price similar to that previously
discussed (2.4 to 1). The exercise price per share of LVDG Common Stock under
the new option or warrant will be equal to the quotient of the exercise price
per share of the Company's Common Stock under the original option or warrant
divided by the Exchange Ratio.
e. GOING CONCERN MATTERS
The accompanying consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
financial statements during the years ended December 31, 1997 and 1996, the
Company had incurred operating losses of $1,936,400 and $421,100,
respectively. Additionally, as of December 31, 1997 the Company had negative
working capital of approximately $3.1 million and insufficient borrowing
capacity to fund the completion of its All-American SportPark complex.
Subsequent to year-end the Company entered into several short-term financing
transactions as noted below in order to fund ongoing operating cash
requirements as well as the continuing construction of the All-American
SportPark. On January 26, 1998 the Company's chairman loaned the Company
$200,000. This loan bears interest at 10 percent and is due on January 26,
2003. On February 5, 1998, the Company secured a $4.0 million short-term loan
bearing interest at 10 percent from a bank. This loan requires interest only
payments, which commenced on March 10, 1998, with the full loan plus all
unpaid interest due August 10, 1998. On March 18, 1998, the Company obtained
an additional $3.0 million short-term promissory note bearing interest at 10
percent from Callaway Golf Company. As security the Company issued a guaranty
and pledged its equity in the All-American Golf LLC. This note is due in full
with principal and interest on June 18, 1998.
The Company's continuation as a going concern is dependent upon its ability to
generate positive cash flows at the Callaway Golf Center and to obtain
additional
F-11
<PAGE>
financing or refinancing which will be required in order to complete the All-
American SportPark.
The Company currently has not secured sufficient financing to complete
construction of the SportPark portion of the Las Vegas facility, or extinguish
the short term financing which has been obtained to fund the continuation of
the construction. The Company expects to receive the balance of the financing
from a combination of sources including outside equity and/or debt investors,
and bank financing. There is no assurance that financing will be obtained
from any of these sources.
The consolidated financial statements do not include any adjustments relating
to the recoverability and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
f. ESTIMATES USED IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt investments with an original
maturity of three months or less to be cash equivalents. As of December 31,
1997 the Company had an overdraft of approximately $668,400 in its primary
bank account. As more fully described in Note 8 the Company's bank extended a
line of credit to fund this shortfall.
b. ACCOUNTS RECEIVABLE
Accounts receivable consists of amounts due from tenants at the Callaway Golf
Center, and the sale of merchandise and/or services.
c. PREOPENING EXPENSES
Preopening costs primarily represent direct personnel and other operating
costs incurred before the opening of the facility. These costs are
capitalized when incurred and amortized to expense on a straight-line basis
over a period not to exceed twelve months from the date operations commenced.
Preopening costs totaling approximately $139,300 were capitalized in
connection with the Callaway Golf Center, which commenced operations on
October 1, 1997. Additional preopening costs totaling $563,600 have been
expensed in connection with the development of the All-American SportPark
portion of the facility. The preopening costs related to the SportPark were
expensed as a result of the uncertainty related to completing the facility.
d. LEASEHOLD IMPROVEMENTS AND PROPERTY
Leasehold improvements and equipment are stated at cost. Depreciation and
amortization is provided for on a straight-line basis over the lesser of the
lease term or the following estimated useful lives of the assets:
F-12
<PAGE>
Furniture and equipment 5-10 years
Leasehold improvements 15 years
Normal repairs and maintenance are charged to expense when incurred.
Expenditures that materially extend the useful life of assets are capitalized.
e. DEFERRED INCOME
Deferred income consists primarily of sponsorship fees received from tenants
and corporate sponsors of the All-American SportPark. Deferred income will be
amortized to income over the life of the agreement upon the commencement of
operations. Additionally, deferred income also includes approximately $67,000
remaining from the agreement with MBNA to use the Company's trademark on its
credit cards over a 5 year period.
f. INCOME TAXES
The Company accounts for income taxes under the provisions of the Statement of
Financial Accounting Standards ("SFAS No. 109"), "Accounting for Income
Taxes".
g. RECLASSIFICATIONS
Certain reclassifications, which had no impact on the Company's results of
operations, have been made in prior year amounts to conform them to the
current year presentation.
h. RECOVERABILITY OF LONG-LIVED ASSETS
In 1996 the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of"
("SFAS 121"). Pursuant to SFAS 121, the Company reviews its long-lived assets
for impairment whenever events or changes in the circumstances indicate that
the carrying amount on an asset or a group of assets may not be recoverable.
The Company deems an asset to be impaired if a forecast or undiscounted future
operating cash flows directly related to the asset, including disposal value
if any, is less than its carrying amount. If an asset is determined to be
impaired, the loss is measured as the amount by which the carrying amount of
the asset exceeds fair value. The Company generally measures value by
discounting estimated cash flows. Considerable management judgement is
necessary to estimate discounted cash flows. Accordingly, actual results
could vary significantly from such estimates. Based upon the short duration
of operations at the Callaway Golf Center the Company does not believe that a
triggering event has occurred with respect to the negative operating income
which has occurred upon initial operations of the facility.
3. EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaces previously reported
earnings per share with "basic" earnings per share and "diluted" earnings per
share. Basic earnings per share is computed by dividing reported earnings by
the weighted-average number of common shares outstanding during the period.
Diluted earnings per share reflects the additional dilution for all
potentially dilutive securities such as stock options. All previously
reported income per share amounts have been restated herein to reflect the
adoption of SFAS 128.
The weighted-average number of common and common equivalent shares used in the
calculation of basic and diluted earnings per share consisted of the following
as of December 31:
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<PAGE>
1997 1996
---------- ----------
Weighted-average common shares outstanding (used
in the computation of basic earnings per share) 3,000,000 3,000,000
Potential dilution from the assumed exercise
of convertible preferred 500,000 -
---------- ----------
Weighted-average common and common equivalent
shares (used in the computation of diluted
earnings per share) 3,500,000 3,000,000
========== ==========
Pursuant to SFAS 128, options having an exercise price greater than the
average market price of the underlying common stock during the period are
excluded from the computation of diluted earnings per share. None of the
Company's outstanding stock options are included in the calculations for the
periods presented because the exercise price was in excess of the market
value.
4. RELATED PARTY TRANSACTIONS
The Company has extensive transactions and relationships with LVDG and
subsidiaries ("Related Entities"), the chairman and principal shareholder of
LVDG, and the retail store owned by the Chairman of LVDG (the "Affiliated
Store"). The Affiliated Store operates in Las Vegas, Nevada but was not a
franchise of the Company. As a result, the store paid no royalties to the
Company but purchased merchandise for the Affiliated Store at the same cost as
the Company. The Affiliated Store also benefited from the Company's
activities, including any local and national advertising conducted by the
Company.
As of December 31, 1996, the Company had a $461,500 receivable from Related
Entities, and a $102,700 and a $5,400 receivables due from the Affiliated
Stores as of December 31, 1997 and 1996 respectively. As of December 31, 1997
the Company also had a $371,100 payable to Related Entities and a $33,200
payable to the Affiliated Store.
5. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
Leasehold improvements and equipment included the following as of December 31:
1997 1996
---------- ---------
Furniture and equipment $ 566,500 $ 153,500
Leasehold improvements 9,378,400 107,600
Other 200,900 -
---------- ---------
10,145,800 261,100
Less--Accumulated depreciation
and amortization (164,400) (177,300)
---------- ---------
$ 9,981,400 $ 83,800
========== =========
6. LEASE TERMINATION RECEIVABLE
In May of 1994, the Company entered into a Ground Lease for approximately 33
acres of land on Las Vegas Boulevard which it intended to use for the
development of an All-American SportPark. The Ground Lease contained
provisions, which allowed the lessor to terminate the lease within the first 6
years of the 15 year
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<PAGE>
lease term in the event that the lessor entered into a sale of the property as
long as the intended use of the property after the sale was not a golf/sports
park as contemplated by the Company.
In June 1995, the lessor notified the Company that it had entered into a sale
agreement for the parcel and that it was exercising its right of termination.
Pursuant to cancellation provisions contained within the Ground Lease the
Company was entitled to reimbursement of unamortized construction costs which
it incurred, based upon criteria contained within the Lease, up to an
aggregate amount of $3.5 million. The purchaser of the parcel assumed the
obligations relating to the termination of the lease.
Upon notification of the Ground Lease termination, the Company ceased
construction activities and submitted substantiation for construction costs
totaling approximately $3.9 million. Utilizing applicable formulas derived
from the Ground Lease the Company believed that $3,279,500 in costs were
reimbursable by the purchaser who assumed the original lessor's obligations
relating to the lease termination. Based upon all of the information
available as of December 31, 1995 the Company believed that the amount would
be collected in 1996 in the amount of $3,000,000 with regards to this
litigation and, accordingly, recorded the lease termination receivable as a
current asset.
In October 1996, this matter was settled for $3,217,000 of which $3,000,000
was applied to the lease termination receivable balance while the remaining
$217,000 in proceeds was applied against legal fees incurred with respect to
the matter in 1996.
7. PROJECT DEVELOPMENT COSTS
Total project development costs totaled $7,850,100 as of December 31, 1997
relating to the continuing construction of the All-American SportPark. These
costs consists primarily of $6,740,200 in buildings, $352,500 in land
improvements, and $572,200 in furniture, fixtures and signs. The remaining
$185,200 consists of various items such as fencing and other items. The All-
American SportPark is expected to be completed by June 1998.
The Company currently has not secured sufficient financing to complete
construction of the SportPark portion of the Las Vegas facility. The Company
has been holding discussions with a number of potential corporate sponsors who
have expressed an interest in participating in the SportPark, and management
expects that corporate sponsors will contribute a portion of the financing
needed. However, at the present time no formal agreements with respect to
securing financing for the project have been reached.
8. BANK LINE OF CREDIT
As of December 31, 1997 and 1996, respectively, the Company had a $800,000 and
$400,000 bank line of credit. Interest is payable monthly at one and one half
(1.5%) percent over the bank's prime rate which was 9 percent and 9.75 percent
at December 31, 1997 and 1996, respectively. As of December 31, 1997,
$668,400 was outstanding under this facility while no amounts were outstanding
at December 31, 1996. This line of credit was paid in full during February
1998 with a portion of the proceeds collected from the $4.0 million short-term
loan received on February 13, 1998.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following at December 31:
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<PAGE>
1997 1996
---------- ----------
Accounts payable - trade $1,466,200 $ 701,700
Accrued compensation 125,000 -
Payroll and other taxes 93,700 1,500
Income taxes payable 112,500 -
Interest payable 176,200 -
Other - 38,400
---------- ----------
$1,973,600 $ 741,600
========== ==========
10. NOTES PAYABLE
Callaway provided $5,250,000 in debt financing for construction of the
Callaway Golf Center, which bears interest at 10 percent with interest only
payments commencing 60 days after the opening of the golf center (which
occurred on October 1, 1997). The principal is due in 60 equal monthly
payments commencing on October 1, 2002.
Under the terms of the note, All-American Golf was obligated to commence
making payments of interest on December 21, 1997. The Company was unable to
make this payment and at December 31, 1997 was in default on this note.
Subsequently, the Company was unable to meet its interest payments on January
21, February 21, and March 21, 1998. On March 18, 1998, the Company entered
into a forbearance agreement with Callaway Golf Company which cured the
default and established terms to repay the amounts in arrears. The first
payment required under the forbearance agreement is due on May 21, 1998 in the
amount of $80,600.
On December 8, 1997, the Company obtained a short-term loan from First
Security Bank of Nevada for $500,000 at 9 percent interest rate and a line of
credit for $800,000 (see Note 8) both of which are due March 8, 1998. The
note and line of credit were paid in full on February 13, 1998, with a portion
of the proceeds collected from the $4.0 million short-term loan received on
February 13, 1998.
At December 31, 1997, the Company had an unsecured, ten percent note payable
totaling $600,000 with the Company's chairman and principal shareholder. The
principal amount, interest rate, and payment terms are substantially similar
to borrowings which the Company's chairman and principal shareholder obtained
from a bank to fund these loans to the Company. Interest expense of $5,000
related to this note is included in interest expense in 1997.
Aggregate maturities of notes payable for the five years subsequent to
December 31, 1997, are as follows:
Year ending:
1998 $ 500,000
1999 -
2000 -
2001 -
2002 -
Thereafter 5,850,000
----------
$6,350,000
==========
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<PAGE>
11. LEASES
The Company and LVDG share office and warehouse facilities leased from the
Chairman of the Board under a non-cancelable operating lease agreement, which
expires on January 31, 2005. The lease provides for initial monthly lease
payments, which may be increased based on increases in the consumer price
index. The monthly rent expense is $4,200 and is allocated 67 percent to the
Company and 33 percent to LVDG. Rent expenses for the Company's allocated
share of this lease was $50,400 and $76,800 for 1997 and 1996, respectively.
In July 1996, SAGC entered into a lease for 65 acres of undeveloped land in
Las Vegas, Nevada for the development of its first Las Vegas "All-American
SportPark". The lease term is for a period of fifteen years, with two
consecutive five year renewal periods. The lease commences on October 1, 1997
for All-American Golf and February 1, 1998 for the All-American SportPark.
Effective June 20, 1997, SAGC canceled the original lease and replaced it with
two separate leases, one for the Callaway Golf Center and the other for the
All-American SportPark. The annual base amount of $625,000 is due in monthly
installments of $52,083 (All-American Golf $33,173 and All-American SportPark
$18,910). The lease term remains as stated above, the Callaway Golf Center
lease commenced on October 1, 1997. The All-American SportPark lease will
commence on February 1, 1998. Additionally, the Leases contain contingent
rent based upon gross sales at the park ranging from three to ten percent of
the different sources of gross revenues if such percentage revenues exceed
$625,000 annually. The minimum rent shall be increased at the end of the
fifth year of the term and every five years thereafter by an amount equal to
ten percent of the minimum monthly installment immediately preceding the
adjustment date.
As a condition to the lease, SAGC also entered into a Deposit Agreement which
required SAGC to post a refundable deposit to the lessor of $500,000. The
deposit will be applied as follows: $66,346 was used to pay the first two
months rent for All-American Golf, $104,166 as security deposit and the
remainder as prepaid rent to be amortized until exhausted. At December 31,
1997 the remaining balance is $434,000.
At December 31, 1997, minimum future rental commitments under all of the
Company's non-cancelable leases, including the Company's share of the office
and warehouse lease with the Chairman of the Board are as follows:
Year ending
1998 $ 833,000
1999 852,000
2000 834,000
2001 842,000
2002 798,000
Thereafter 4,529,000
----------
Total $8,688,000
==========
Included in the above is $283,400 of capitalized lease obligations.
12. INCOME TAXES
The federal income tax provision consisted of $450,000 in current provision
for the year ended December 31, 1997, which is reflected as a reduction to the
gain in disposal of franchise operations in the accompanying consolidated
statements of operations.
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<PAGE>
Deferred tax assets (liabilities) are related to the following at December 31,
1997 and 1996:
1997 1996
--------- ---------
Provision for bad debt $ - $ 39,000
Deferred income 176,000 43,000
Vacation accrual 11,000 11,000
Commissions - (7,000)
Depreciation (56,000) (2,000)
Net operating loss carryforward - 373,300
Other, net - 1,000
--------- ---------
131,000 458,300
Valuation allowance (131,000) (458,300)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
A reconciliation of income tax expense computed by applying the federal
statutory income tax rate to the Company's income from continuing operations
before provision (benefit) for income taxes is as follows:
1997 1996
----------------- -----------------
Amount % Amount %
Federal income tax
benefit at statutory rate $(476,000) 34 $(143,000) (34)
Tax benefits not currently
available 476,000 34 143,000 34
--------- ---- --------- ----
$ - $ -
========= ==== ========= ====
The Company utilized all available net operating loss carryforwards to offset
the taxable gain on disposal of franchise operations.
13. CAPITAL STOCK, STOCK OPTIONS, AND INCENTIVES
a. STOCK OPTION PLANS
The Company's Board of Directors adopted a stock option plan (the "1994 Plan")
on August 8, 1994 authorizing the issuance of up to 300,000 shares of the
Company's common stock. On April 16, 1996, the Board of Directors voted to
increase the number of authorized shares to 500,000 and on April 24, 1996
voted to increase total shares eligible for grant to 700,000. Three hundred
thousand options to purchase shares of common stock of Saint Andrews Golf
Corporation at an exercise price of $5.00 per share were granted in 1994. Two
hundred and forty thousand of these options are exercisable anytime on or
before August 8, 1999 while the remaining 60,000 options vest in increments of
20,000 annually commencing on August 8, 1995.
In April 1996, a total of 377,000 options were granted in connection with the
increase in shares available. These grants increased the total shares issued
under the plan to 677,000. All of the shares issued in April 1996 were
cancelled and replaced on June 9, 1997. The original options had an exercise
price ranging between $4.625 and $4.75 through April 2001. The replacement
options are exercisable at an exercise price of $3.06 through April 2001. Six
hundred and
F-18
<PAGE>
sixty-seven thousand of the shares are exercisable anytime while 10,000 shares
vest ratably over a four year period. Shareholder approval occurred on April
16, 1997 as required for approval of these additional shares. The exercise
price was equal to or exceeded the fair market value of the common stock at
the date of grant. At December 31, 1997, 23,000 additional shares are
reserved for future options.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The
fair value for these options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted-average assumptions
for 1997: risk-free interest rates of 5% and 5.06%; dividend yields of 0.0%;
volatility factors of the expected market price of the Company's common stock
of .619; and a weighted-average expected life of 1.73 years.
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
Year ended December 31, 1997 1996
---------- ----------
Net Income (Loss)
As reported $ 220,700 $ (750,200)
Pro forma $ (211,300) -
Basic net income (loss) per share
As reported $ .07 (.25)
Pro forma $ (.07) -
Diluted net income (loss) per share
As reported $ .06 (.25)
Pro forma $ (.07) -
b. PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock. As of
December 31, 1997, there were 500,000 Series A Convertible Preferred shares
issued or outstanding.
F-19
<PAGE>
c. SERIES A CONVERTIBLE PREFERRED STOCK
On July 11, 1996 the SAGC Board of Directors authorized the creation of
500,000 shares of Series A Convertible Preferred Stock with a $.001 par value.
On July 29, 1996, SAGC entered into an agreement which resulted in the sale,
on an installment basis, of the 500,000 shares of the Series A Convertible
Preferred Stock to Three Oceans Inc. ("TOI"), an affiliate of Sanyo North
America Corporation, at $10.00 per share for a total of $5,000,000. The
agreement also resulted in the assignment of certain rights to TOI. All
proceeds related to the agreement were received in accordance with the stated
terms to this agreement on October 7, 1996. Issuance costs totaling $162,000
were incurred related to the preferred stock and have been netted against
retained earnings.
Each share of the Series A Convertible Preferred Stock issued to TOI is
convertible at the option of TOI into one share of SAGC's common stock. In
the event of liquidation or dissolution of the Company, each share of Series A
Convertible Preferred Stock will have a $10.00 liquidation preference over all
other shareholders. In addition, holders of the Series A Convertible
Preferred Stock shall be entitled to receive dividends at a rate equal to the
rate per share payable to common stock holders, assuming conversion of the
Preferred shares. The Preferred shares can be redeemed by the Company upon a
registration statement being declared effective by the Securities and Exchange
Commission covering the issuance of the common stock upon conversion of the
Preferred Stock and the following two conditions being satisfied: (1) SAGC
earns $1,000,000 of pre-tax income for a fiscal year according to the year-end
audited financial statements; and (2) the closing bid price for the Company s
common stock is at least $15.00 for 20 consecutive trading days. If SAGC
notifies TOI of its intent to redeem the Preferred Stock, TOI will have at
least 30 days to elect to convert its Preferred Stock or accept the redemption
price of $12.50. Each share of Series A Convertible Preferred Stock is
entitled to vote along with the holders of SAGC's common stock.
The rights granted to TOI in accordance with the agreement include the
following: (1) right of first refusal with respect to debt and or equity
financing arrangements for SportParks developed by SAGC's subsidiary
All-American SportPark, Inc. for a period of 5 years commencing July 29, 1996
and for a period of 3 years for Anaheim, California and Las Vegas, Nevada, (2)
an obligation to obtain electrical and electronic equipment for such
SportParks for a period of 5 years, (3) certain signage rights for TOI or its
designees at the first two SportParks and (4) other miscellaneous rights as
defined. Pursuant to the agreement, SAGC also granted TOI an option to
purchase up to 250,000 shares of SAGC's common stock at $5.00 per share for a
period of 5 years from the date of the agreement.
The agreement also provides for certain demand and piggyback registration
rights with respect to the shares of common stock issuable upon the conversion
of the Series A Convertible Preferred Stock and the exercise of the option.
Pursuant to the agreement, SAGC expanded the number of Directors of SAGC from
four to five, and elected Motoharu Iue as a Director of SAGC. Mr. Iue is
President of Three Oceans Inc.
d. COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS
On December 13, 1994, the Company completed a public offering of 1,000,000
Units, each Unit consisting of one share of Common Stock and one Class A
Common Stock Purchase Warrant. As a result, 1,000,000 shares of Common Stock
and 1,000,000 Class A Warrants were issued. Net proceeds from the offering
were $3,684,000. Two Class A Warrants entitle the holder to purchase one
share of SAGC common
F-20
<PAGE>
stock for $6.50, $2 above the initial public offering price. The Class A
Warrants have been assigned a value of $.1875 for financial reporting
purposes. In connection with the sale of the franchise business, the
expiration date of the class A Warrants has been extended to June 12, 1998.
In connection with the initial public offering, the Company issued to the
Representative of the Underwriters, Representative's Warrants to purchase
100,000 shares (10 percent of the units purchased by the underwriters), with
an exercise price of $5.40 for a four-year period beginning on December 13,
1995. These Representative's Warrants contain certain demand and piggyback
registration rights. The Company also issued to the Representative 100,000
Class A Warrants which entitle the Underwriter to purchase 50,000 shares of
Common Stock (5 percent of the units purchased by the underwriters), with an
exercise price of $7.80 per share exercisable beginning on December 13, 1995.
As of December 31, 1997, no warrants have been exercised.
14. EMPLOYEES 401(k) PROFIT SHARING PLAN
The Company offers all its eligible employees participation in the Employees
401(k) LVDG Profit Sharing Plan ("Plan"). The Plan provides for purchases of
certain investment vehicles by eligible employees through annual payroll
deductions of up to 15% of base compensation. For 1997 and 1996, the Company
matched 50% of employees contributions up to a maximum of 6% of an employee's
base compensation. The Company had expenses related to the Plan of $54,000
and $34,300 for 1997 and 1996, respectively.
15. SUPPLEMENTAL NON-QUALIFIED RETIREMENT PLAN
In 1995, the Company entered into a Supplemental Retirement Plan for certain
key employees of which the President of SAGC is included. This plan became
effective on January 1, 1996. The Company had expenses related to the plan of
$25,000 and $35,000 for 1997 and 1996, respectively.
16. COMMITMENTS AND CONTINGENCIES
The Company has employment agreements with its President, as well as other key
employees which require the payment of fixed and incentive based amounts of
compensation.
The Company has entered into a letter agreement with Oracle One Partners, Inc.
("Oracle") whereby Oracle has been retained to assist the Company in obtaining
corporate sponsorship for certain areas of the All-American SportPark projects
including a license agreement from Major League Baseball for a Slugger
Stadium. The initial period of the agreement was for the three-month period
ending September 30, 1994, and the agreement has been continued on a
month-to-month basis since then. The Company is paying Oracle $4,000 a month
and has agreed to pay Oracle 15% of the gross of any sponsorship fees for
sponsors obtained through the efforts of Oracle. The Company paid Oracle
$60,000 for its efforts in obtaining the exclusive license agreement with
Major League Baseball described below.
In December 1994, the Company entered into an agreement with Major League
Baseball ("MLB") concerning a license for the use of MLB logos, trade marks
and mascots in the decor, advertising and promotions of the Company's Slugger
Stadium concept. This agreement was amended during August 1997. Pursuant to
the amended agreement, the Company holds the exclusive right to identify its
indoor and outdoor baseball batting stadiums as Major League Baseball Slugger
Stadiums. The license covers the United States and expires on November 30,
2000, subject to the right to extend for three additional years provided
certain conditions are met.
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<PAGE>
As consideration for the license, the Company agreed to pay $50,000 for each
Stadium opened provided that in any year of the term of the agreement a
stadium is not opened, the Company must pay $50,000 during such year. The
Company has made the payments required for 1995, 1996 and 1997. In addition
to and as an offset against the minimum payments set out above, the Company is
required to pay to MLB a royalty based on the revenue from the batting cages
of the greater of (i) six and one-quarter percent (6-1/4%) or (ii) the royalty
rate payable by the Company to any other individual or entity for the right to
open or operate any attraction or event in the Sports Entertainment Complex.
The Company's right to exclusively use MLB logos and other marks at its
baseball batting stadiums is dependent upon certain conditions set forth in
the agreement.
In May 1996, the Company entered into an agreement with Jeff Gordon, the 19975
NASCAR Winston Cup Champion, 1997 Daytona 500 Champion, 1997 Coca-Cola 600
Champion, 1995 Winston Cup Champion and former NASCAR Winston Cup Rookie of
the year, to serve as spokesperson of the NASCAR SpeedPark through April 30,
2000. According to the original agreement, Mr. Gordon was paid $25,000 for
his services during 1996, and is to be paid $25,000 per SpeedPark opening per
year with a minimum guarantee over the life of the agrreement; he is to
receive 1% of the net profits of each SpeedPark; .25% of net profits are to go
to a charity designated by Mr. Gordon; and additional fees for recording
television and radio spots and making more than six appearances per year. Mr.
Gordon was also granted options under the Company's stock option plan. On
November 20, 1997, the agreement with Mr. Gordon was amended to, among other
things, reduce the amount of services to be provided by him, to make his
services non-exclusive to the Company, to limit his services to the Las Vegas
SportPark and to set his base fee at $25,000 per year.
The Company has an exclusive license agreement with The National Association
of Stock Car Auto Racing, Inc. ("NASCAR") for the operation of SpeedParks as a
part of the All-American SportPark or as a standalone NASCAR SpeedPark. The
agreement, as amended, provides that the Company has an exclusive license to
use certain trademarks and service marks in the development, design and
operation of go-kart racing facilities having a NASCAR racing theme in the
territories of Las Vegas, Nevada and Southern California. The agreement
provides that the exclusive rights to Las Vegas are subject to the condition
that the Las Vegas SpeedPark is opened by March 1, 1998, and that the
exclusive rights to Southern California are subject to the condition that the
Southern California SpeedPark is opened by March 1, 1999, the license for that
site would continue until December 31, 2003, and if the Company opens the
Southern California site by March 1, 1999, the license for that site will
continue until December 31, 2003. NASCAR has verbally agreed to extend the
March 1, 1998, deadline for the Las Vegas SportPark, but no new deadline has
yet been determined.
In January 1997, the Company entered into an agreement with the Pepsi-Cola
Company ("Pepsi") concerning an exclusive sponsorship agreement. Under the
agreement, Pepsi would receive certain exclusive rights related to soft
drinks, tea products, juice products, bottled water and similar products in
exchange for a series of payments totaling $1,250,000 beginning when the
SportPark opens. The Company received $250,000 as the first payment on this
contract on December 31, 1997. The remaining amounts are due annually over a
four year period starting with the commencement of operations of the All-
American SportPark. The rights granted to Pepsi are to include that Pepsi's
products will be exclusively sold for the categories listed, that only Pepsi
identified cups will be used in the SportPark, and that Pepsi would have the
right to name the multipurpose arena the AllSport Arena. In addition, Pepsi
will provide the equipment needed to dispense its products at the SportPark.
The agreement with Pepsi will provide that the
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<PAGE>
Company and Pepsi will participate in joint marketing programs such as
promotions on Pepsi's products and local radio advertising.
In September 1997, the Company entered into a lease and concession agreement
with Sportservice Corporation ("Sportservice") which provides that
Sportservice has the exclusive right to prepare and sell all food, beverages
(alcoholic and non-alcoholic), candy and other refreshments throughout the
All-American SportPark, including the Callaway Golf Center [TM], during the
ten year term of the agreement. Sportservice has agreed to pay rent based on
a percentage of gross sales depending upon the level of sales, whether the
receipts are from concession sales, the Arena restaurant, the Clubhouse,
vending machines, mobile stands, or catering sales. Rents from the Callaway
Golf Center [TM] will be paid to All-American Golf, LLC and all other rents
will be paid to the Company.
Sportservice is expected to invest approximately $3.85 million into the
concessions and operations which includes all food service leasehold
improvements.
The agreement also provides Sportservice with a right of first refusal for
future parks to be built by the Company in consideration for a $100,000
payment. An additional payment of up to $100,000 is due depending on whether
Sportservice's development costs for its leasehold improvements and food
service assets exceeds the estimate of $3.85 million.
The agreement has a number of other terms and conditions including a
requirement that the Company and the LLC must develop and construct the
SportPark in accordance with certain specifications provided to Sportservice,
and provide all necessary building structure and shell components. The
Company and the LLC must operate the SportPark on a year-round, seven days a
week basis throughout the term of the agreement.
The Company has entered into a two year agreement with Integrated Sports
International ("ISI") whereby ISI has been retained to assist the Company in
obtaining corporate sponsorship for various areas of the SportPark.
All-American Golf, LLC has executed a license agreement with Callaway Golf
pursuant to which All-American Golf, LLC licenses the right to use the mark
"Callaway Golf Center[TM]" from Callaway Golf for an annual royalty not to
exceed $50,000. Pursuant to this agreement, Callaway Golf has the right to
terminate the agreement at any time without cause on ninety days prior written
notice and with payment of $500,000. Such termination could have an adverse
impact on the success of the golf center.
The Company intends to purchase a comprehensive general liability insurance
policy to cover possible claims for injury and damages from accidents and
similar activities. There is no assurance that such coverage can be obtained,
or if obtained, that it can be obtained at reasonable rates nor that it will
be sufficient to cover or be available for future claims.
The Company is involved in certain litigation as both plaintiff and defendant
related to its business activities. Management, based upon consultation with
legal counsel, does not believe that the resolution of these matters will have
a materially adverse effect upon the Company.
17. SUBSEQUENT EVENT
On May 5, 1998, pursuant to the terms of a Purchase and Sale Agreement between
the Company and Callaway Golf, the Company sold its 80% membership interest in
F-23
<PAGE>
the LLC to Callaway Golf for $1,500,000 in cash and the forgiveness of the
$3,000,000 debt, including the interest thereon, owed to Callaway by the
Company. Of the cash payment, $500,000 was held back by Callaway until it has
assured itself that it has obtained all of the rights necessary to operate the
Callaway Golf Center. In connection with the sale of the membership interest,
the Company resigned as the manager of the LLC, and agreed not to compete with
the Callaway Golf Center in Clark County, Nevada for a period of two years.
As a result of the sale of its interest in the LLC, the Company has no
ownership of the Callaway Golf Center, and the Callaway Golf Center will now
be operated separately from the All-American SportPark. However, the Company
will have the option to repurchase the 80% membership interest for a period of
two years. To exercise such right, the Company would be required to pay
$4,500,000 plus 100% of any undisclosed liabilities as of May 5, 1998, which
have not been satisfied by the Company, plus 80% of any additional capital
expenditures by the LLC, plus 80% of losses incurred by the LLC to the date of
exercise of the option. In the event that the Company exercises this option,
the Company will receive an allocation of the profits and losses in the LLC,
but it will not have the right to manage the LLC or Callaway Golf Center.
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned thereunder duly authorized.
SAINT ANDREWS GOLF CORPORATION
Dated: May 12, 1998 By /s/ Ronald S. Boreta
Ronald S. Boreta, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
/s/ Vaso Boreta Chairman of the Board May 12, 1998
Vaso Boreta and Director
/s/ Ronald S. Boreta President (Chief May 12, 1998
Ronald S. Boreta Executive Officer),
Treasurer and Director
/s/ Charles Martin Chief Financial Officer May 12, 1998
Charles Martin
/s/ Robert S. Rosburg Director May 12, 1998
Robert S. Rosburg
___________________________ Director
William Kilmer
___________________________ Director
Motoharu Iue
PROMISSORY NOTE
$3,000,000.00 March 18, 1998
San Diego, California
FOR VALUE RECEIVED, All-American SportPark, Inc., a Nevada corporation
("Maker"), promises to pay to Callaway Golf Company, a California corporation
("Holder"), or order, at its place of business in San Diego, California, or
such other place as Holder may designate, the principal amount of Three
Million Dollars ($3,000,000.00), or so much thereof as may be advanced, with
interest on such amounts advanced until paid, at the rate set forth below and
payable as follows:
INTEREST RATE. The amount of outstanding principal shall bear interest at a
rate of ten percent (10%) per annum. Interest shall accrue on the principal
balance from the date of and on the amount of each advance made under this
Note, as advances are made pursuant to the paragraph of this Note titled
Disbursement Instruction and Authorization and shall be calculated on the
basis of a 365-day year.
MAXIMUM INTEREST. In no event whatsoever shall the amount paid, or agreed to
be paid, to Holder for the use, forbearance or detention of money to be loaned
hereunder or otherwise, for the performance or payment of any covenant or
obligation contained herein, exceed the maximum amount permissible under
applicable law. If from any circumstance whatsoever fulfillment of any
provision hereof exceeds the limit of validity prescribed by law, then, ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any such circumstance Holder shall ever receive as
interest under this Note or otherwise an amount that would exceed the highest
lawful rate, such amount that would be excessive interest shall be applied to
the reduction of the principal amount owing hereunder and not to the payment
of interest, or if such excessive interest exceeds the unpaid balance of
principal, such excess shall be refunded to Maker.
TERM. The term of this Note shall be for a period beginning on the date
hereof and ending on the earlier of the following dates (the "Maturity Date"):
(i) June 18, 1998; or (ii) the date upon which Summit Financial Group, Inc.,
or any affiliate thereof, or any other lender or investor shall make any loan
to or equity investment in Maker, Saint Andrews Golf Corporation ("Saint
Andrews") or any affiliate of either of such entities. All unpaid principal,
together with any and all accrued and unpaid interest, shall be due on the
Maturity Date.
PAYMENT. All principal and interest due hereunder shall be payable on or
before the Maturity Date.
Any payment hereunder shall be applied first to the payment of costs and
charges of collection, if any, then to accrued interest, and the balance, if
any, shall be then applied to reduction of principal. Principal and interest
are payable in lawful money of the United States of America.
PREPAYMENT. Maker may prepay this Note in full or in part at any time without
prepayment charge. No partial prepayment shall release Maker from thereafter
tendering all regular scheduled payments required herein until this Note is
paid in full. No amount prepaid shall be available for reborrowing.
GUARANTY AGREEMENT. This Note is guarantied pursuant to a Guaranty executed
contemporaneously herewith by Saint Andrews in favor of Holder (the
"Guaranty"). The Guaranty is secured by a Membership Interest Security
Agreement dated June 13, 1997 by and between Holder and Saint Andrews.
DEFAULT/ACCELERATION. If any one or more of the following events shall occur
(hereinafter called an "Event of Default"), namely: (i) Maker shall fail to
timely make payment of any installment hereunder and such failure is not cured
within ten (10) days of written notice by Holder to Maker; (ii) default or an
event of default shall occur under the Guaranty or the Membership Interest
Security Agreement; (iii) Maker shall have failed to comply with or otherwise
perform any other term, provision, covenant or condition under this Note; (iv)
any failure of this Note to be valid, binding and the enforceable obligation
of Maker; (v) the levying of any attachment, execution or other process
against Maker or against any material portion of its property; (vi) if Maker
(or any successor thereto) shall make a general assignment for the benefit of
creditors; or shall file or have filed against it a petition for relief under
the bankruptcy law of the United States; or in the event that a receiver,
trustee or other court officer is appointed for the purpose of taking
possession of any part of Maker's property; or (vii) any revocation or
purported revocation of the Guaranty; THEN, upon the occurrence of any such
Event of Default, or upon the expiration of the term of this Note, Holder at
its election, and without presentment demand, notice of any kind all of which
are expressly waived by Maker, may declare the entire outstanding balance of
principal and interest thereon immediately due and payable, together with all
costs of collection, including attorneys' fees, or may exercise any of its
rights other rights and remedies, all of which rights and remedies are
cumulative.
NO WAIVER BY HOLDER. The acceptance by Holder of any payment under this Note
after the date such payment is due, or the failure to declare an Event of
Default as herein provided, shall not constitute a waiver of any of the terms
of this Note or the right to require the prompt payment when due of future or
succeeding payments or to declare an Event of Default for any failure to so
pay or for any other default. The acceptance by Holder of a payment of a
portion of any installment at any time that such installment is due in full
shall not cure or excuse the default caused by the failure to pay such
installment in full and shall not constitute a waiver of the right to require
full payment when due of all future or succeeding installments. All remedies
and rights of Holder are cumulative.
ATTORNEYS' FEES AND COSTS. In the event Holder takes any action to enforce
any provision of this Note, either through legal proceedings or otherwise,
Maker promises to immediately reimburse Holder for reasonable attorneys' fees
and all other costs and expenses so incurred as awarded by a court of law.
Maker shall also reimburse Holder for all attorneys' fees and costs reasonably
incurred in the representation of Holder in any bankruptcy, insolvency,
reorganization or other debtor-relief proceeding of or relating to Maker, or
for any action to enforce any judgment rendered hereon or relating to
enforcement hereof.
LATE PAYMENT. Maker agrees that if for any reason it fails to make any of the
monthly payments required herein, including the amount due at the Maturity
Date, within five (5) days after the due date, Holder shall be entitled to
damages for the detriment caused thereby, the extent of which damages are
extremely difficult and impractical to ascertain. Maker therefore agrees that
a sum equal to five percent (5%) of such delinquent payment is a reasonable
estimate of such damages and Maker agrees to pay such sum upon demand by
Holder. Acceptance of such late charge by the Holder shall in no event
constitute a waiver of Maker's default with respect to such overdue amount nor
prevent the Holder from exercising any of the other rights and remedies
granted hereunder.
DISBURSEMENT INSTRUCTION AND AUTHORIZATION. Holder is making the loan to
Maker evidenced hereby to facilitate Maker's payment of construction and
related costs of the "All-American SportPark" located in Las Vegas, Nevada
(the "SportPark"). Maker agrees that no portion of any advance made hereunder
shall be used to pay or otherwise be disbursed to Saint Andrews or any insider
or affiliate of Saint Andrews or Maker. Holder shall make advances from time
to time hereunder, in its sole and absolute discretion, directly to Maker
within two (2) business days after receipt of Maker's written request
submitted to Holder in the form as attached hereto as Exhibit "A" (each a
"Borrowing Request"), subject to all terms of this Note; and further provided
that Maker shall not request an advance under this Note more frequently than
once every thirty (30) days and no advances shall be made or available under
this Note after April 30, 1998. Maker represents, warrants, and agrees that
all advances made hereunder shall be utilized to pay the creditors of Maker as
set forth and in the amounts provided in each Borrowing Request. Such
advances shall be subject to the terms of this Note. Holder shall note all
advances, their amounts and the disbursement date, and principal amounts paid,
on the schedule attached hereto, and shall provide a copy of the updated
schedule to Maker after each advance and such notations shall constitute prima
facie evidence of the outstanding principal amount hereof; provided, however,
that Holder's failure to record any such advance or payment shall not alter
Maker's obligation to repay all amounts actually advanced hereunder.
Notwithstanding any other provision of this Note, or any other agreement
executed in connection herewith, Holder shall have no obligation to advance
any amounts to Maker, before, upon or after the occurrence of any Event of
Default hereunder, or upon an event occurring with which the giving of notice
or the passage of time would be an Event of Default.
WAIVERS. The Maker, endorsers, guarantors and sureties of this Note hereby
waive diligence, demand, presentment, notice of nonpayment, protest and notice
of protest, and expressly agree that this Note and any payment hereunder, may
be renewed, modified or extended from time to time and at any time and consent
to the acceptance or release of the security for this Note or a release of any
party or guarantor, all without in any way effecting their liability and waive
the right to plead any and all statutes of limitations as a defense to any
demand on this Note, or on any guaranty thereof, or to any agreement to pay
the same to the full extent permissible by law.
MISCELLANEOUS. The terms of this Note shall inure to the benefit of and bind
the parties hereto and their successors and assigns. Maker represents and
warrants to Holder that the obligations hereunder arise out of or in
connection with business purposes and do not relate to any personal, family or
household purpose. As used herein the term "Maker" shall include the
undersigned Maker and any other person or entity who may subsequently become
eligible for the payment hereof. The term "Holder" shall include the named
Holder as well as any other person or entity to whom this Note or any interest
in this Note is conveyed, transferred or assigned. This Note or any interest
in this Note, and all rights and security therefore, may be conveyed,
transferred or assigned by the Holder to any other person or entity without
the consent of Maker. Each person signing this Note on behalf of Maker
represents and warrants that he has full authority to do so and that this Note
binds Maker. The terms of this Note may only be modified by a writing signed
by Maker and Holder.
NOTICE. All notices and other communications provided for hereunder shall be
in writing (including telegraphic, telecopied or telex communication) and
mailed or telegraphed or telecopied or delivered to the parties at their
respective addresses as set forth below, or, as to each party, at such other
address as shall be designated by such party in a written notice to the other
parties complying as to delivery with the terms of this Section. All such
notices and communications, if mailed, shall be effective upon deposit in the
United States mail, first-class (or certified) postage prepaid; if telegraphed
or telecopied, shall be effective when transmitted, if sent by telex, shall be
effective when the telex is sent and the appropriate answer back is received,
and if delivered in another way, shall be effective upon receipt.
To All-American SportPark, Inc. at its business office:
5235 South Valley View Boulevard, Suite 10
Las Vegas, Nevada 89118
Attention: Ron Boreta, President
Telephone No.: (702) 798-7777
Facsimile No.: (702) 739-9509
To Callaway Golf at its business office:
Callaway Golf Company
2285 Rutherford Road
Carlsbad, California 92008-8815
Attn: Donald H. Dye, President and Chief
Executive Officer
Telephone: (760) 930-5738
Facsimile: (760) 930-5022
GOVERNING LAW. This Note shall be governed by and construed and enforced in
accordance with the internal laws of the State of California without giving
any effect to principles of conflict of laws. This Note shall be deemed made
and entered into in San Diego County, California.
ALL-AMERICAN SPORTPARK, INC., a Nevada corporation
By: -------------------------------
Its: ------------------------------
By: ------------------------------
Its: ------------------------------
<PAGE>
EXHIBIT A
[FORM OF NOTICE OF BORROWING REQUEST]
Pursuant to that Promissory Note (said Promissory Note, as so amended,
supplemented or otherwise modified, being the "Note") dated as of March 18,
1998 between All-American SportPark, Inc. (the "Maker") and Callaway Golf
Company (the "Holder"), this represents the Maker's request to borrow from
Holder, $_________________, to be utilized for the payment of the following:
Creditor Name, Address and Telephone Number
Contract or Account Number
Amount to be Paid
Brief Description of Nature of Services Rendered or Goods Supplied or Sold
The undersigned officers certify that:
A. The representations and warranties contained in the Note are true and
correct in all material respects on and as of the date hereof;
B. No event has occurred and is continuing or would result from the
consummation of the borrowing contemplated hereby that would constitute an
Event of Default under the Note or would be such an event of default with the
passage of time, the giving of notice or both;
C. No portion of the amount requested above shall be paid to any insider or
affiliate of Maker or Saint Andrews Golf Corporation; and
D. The Note is in full force and effect, and is not subject to offset,
defense or counterclaim.
ALL-AMERICAN SPORTPARK, INC. a Nevada corporation
By: -------------------------
Its: -------------------------
By: -------------------------
Its: -------------------------
<PAGE>
SCHEDULE OF ADVANCES
Date
Amount of Advance
Amount of Principal Paid
Unpaid Principal Balance of Note
Amount of Interest Paid
Notation Made by
GUARANTY
THIS GUARANTY ("Guaranty") is executed as of the 18th day of March,
1998, by Saint Andrews Golf Corporation, a Nevada corporation (the
"Guarantor"), in favor of Callaway Golf Company, a California corporation (
"Callaway Golf"), and its successors and assigns, with reference to the facts
set forth below.
RECITALS
A. Callaway Golf has agreed to make a loan, or provide other
financial accommodations to All-American SportPark, Inc. (the "Borrower").
The Borrower's obligations to Callaway Golf in respect of such loan or other
financial accommodations are evidenced by a Promissory Note, in the original
principal amount of Three Million Dollars ($3,000,000.00), dated March 18,
1998, executed by Borrower (as at any time amended, modified, or supplemented,
and including any replacement notes issued in exchange or substitution
therefor or for any such replacement note, the "Note").
B. The Guarantor owns all of the outstanding capital stock of the
Borrower, or otherwise expects to benefit from the grant by Callaway Golf to
the Borrower of the loan or other financial accommodations.
C. As an essential inducement to Callaway Golf's agreement to make
such loan or to provide such other financial accommodations to the Borrower
and in consideration therefor and at the request of the Borrower, the
Guarantor has agreed to guaranty the payment of all obligations of the
Borrower under the Note, as provided herein.
NOW, THEREFORE, in consideration of the premises, and to induce and in
consideration for the loan or other financial accommodations, the Guarantor
agrees for the benefit of Callaway Golf, its successors and assigns, as set
forth below.
1. Guaranty.
(a) The Guarantor hereby unconditionally and irrevocably
guaranties to Callaway Golf the payment of, and promises to pay to Callaway
Golf, or order, all indebtedness and obligations, of any nature whatsoever, of
the Borrower under the Note and any and all extensions, renewals,
substitutions, replacements, and modifications thereof, whether now in
existence or hereafter created, including, without limitation, (i) all
principal of and interest on the Note and (ii) all fees, charges, costs, and
other amounts payable by the Borrower under the Note (all of the foregoing
obligations, the "Guarantied Obligations").
(b) This is a continuing guaranty relating to the Guarantied
Obligations, including, without limitation, obligations and liabilities
arising under successive and future transactions that either increase,
decrease, or continue the Guarantied Obligations, or, from time to time, renew
Guarantied Obligations that have been satisfied, independent of and in
addition to any guaranty, endorsement, or collateral now or hereafter held by
Callaway Golf, whether or not furnished by the Guarantor. This Guaranty shall
apply and be irrevocable with respect to any indebtedness created or incurred
even after actual receipt by Callaway Golf of any written notice of revocation
by Guarantor which indebtedness arises out of any extension, renewal, advance,
additional advance, refunding, replacement or modification of any indebtedness
originally created prior to the actual receipt of such written notice
regardless of whether such extension, renewal, advance, additional advance,
refunding replacement or modification occurs prior to such revocation, and
Guarantor waives any right to revoke this Guaranty and the benefits of
California Civil Code Section 2815.
2. Rights of Callaway Golf.
The Guarantor consents that Callaway Golf may, and authorizes Callaway
Golf at any time in its discretion without notice or demand and without
affecting the indebtedness and liabilities of the Guarantor hereunder to: (i)
enter into agreements with the Borrower and renew, extend, amend, waive,
restructure, refinance, release, accelerate, or otherwise change the time for
payment of, or otherwise change the terms of, the indebtedness evidenced
thereby (including, without limitation, the Guarantied Obligations),
including, without limitation, (A) increase or decrease in the Guarantied
Obligations or the rate of interest on the Guarantied Obligations and (B) any
amendment of the Guarantied Obligations to permit Callaway Golf to extend
further or additional accommodations to the Borrower in any form, including
credit by way of loan, lease, sale or purchase of assets, guarantee, or
otherwise, which shall thereupon be Guarantied Obligations; (ii) accept new or
additional documents, instruments, or agreements relative to the Guarantied
Obligations; (iii) consent to the change, restructure or termination of the
individual, partnership, or corporate structure or existence of the Borrower,
the Guarantor or any affiliate of the Borrower or the Guarantor and
correspondingly restructure the Guarantied Obligations; (iv) accept partial
payments on the Guarantied Obligations; (v) take and hold collateral or
additional guaranties for the Guarantied Obligations and amend, alter,
exchange, substitute, transfer, enforce, perfect or fail to perfect, waive,
subordinate, terminate, or release any such collateral or guaranties; (vi)
apply any collateral, and direct the order and manner of sale thereof as
Callaway Golf in its sole discretion may determine; (vii) settle, release on
terms satisfactory to Callaway Golf or by operation of law or otherwise,
compound, compromise, collect, or otherwise liquidate the Guarantied
Obligations and/or the collateral or any guaranty therefor in any manner,
whether in liquidation, reorganization, receivership, bankruptcy, or
otherwise; (viii) release the Borrower or any other party for all or any part
of the Guarantied Obligations; or (ix) assign the Guarantied Obligations or
any rights related thereto in whole or in part.
3. Independent Obligations.
This Guaranty is a guaranty of payment and not of collection. The
Guarantor's obligations under this Guaranty are independent of those of the
Borrower and of the obligations of any other guarantor, and are not
conditioned or contingent upon the genuineness, validity, regularity, or
enforceability of the Note or other Guarantied Obligations or of the
obligations of any other guarantor. Callaway Golf may bring a separate action
against the Guarantor without first proceeding against the Borrower, any other
guarantor, or any other person or entity, or any security held by Callaway
Golf, and without pursuing any other remedy. Callaway Golf's rights under
this Guaranty in respect of the Guarantied Obligations shall not be exhausted
by any action of Callaway Golf until all of the Guarantied Obligations have
been fully and indefeasibly paid.
4. Waiver of Defenses.
The Guarantor waives and agrees not to assert or take advantage of (i)
any right to require Callaway Golf to proceed against the Borrower, any other
guarantor, or any other person or entity, or against any security now or
hereafter held by Callaway Golf, or to pursue any other remedy whatsoever;
(ii) any defense based upon any legal disability of the Borrower or of any
other guarantor or any discharge or limitation of the liability of the
Borrower or of any other guarantor to Callaway Golf, or any restraint or stay
applicable to actions against the Borrower or against any other guarantor,
whether such disability, discharge, limitation, restraint, or stay is
consensual, arises by order of a court or other governmental authority, or
arises by operation of law or any liquidation, reorganization, receivership,
bankruptcy, insolvency or debtor-relief proceeding, or from any other cause,
including, without limitation, any defense to the payment of interest,
attorneys' fees and costs, and other charges that otherwise would accrue or
become payable in respect of the Guarantied Obligations after the commencement
of any such proceeding, it being the intent of the parties that the Guarantied
Obligations shall be determined without regard to any rule of law or order
that may relieve the Borrower of any portion of such obligations; (iii)
setoffs, counterclaims, presentment, demand, protest, notice of protest,
notice of non-payment, or other notice of any kind; (iv) any defense based
upon the modification, renewal, extension, or other alteration of the
Guarantied Obligations; (v) any defense based upon the negligence of Callaway
Golf, including, without limitation, the failure to record an interest under a
deed of trust, the failure to perfect any security interest, or the failure to
file a claim in any bankruptcy of the Borrower or of any other guarantor; (vi)
any defense based upon a statute of limitations (to the fullest extent
permitted by law), and any defense based upon Callaway Golf's delay in
enforcing this Guaranty or any other agreement; (vii) any defense based upon
or arising out of any defense that the Borrower may have to the performance of
any part of the Guarantied Obligations; (viii) any defense to recovery by
Callaway Golf of a deficiency after non-judicial sale of real or personal
property; any defense based upon the unavailability to Callaway Golf of
recovery of a deficiency judgment after non-judicial sale of real or personal
property; and any defense based upon or arising out of any of Sections 580a
(which would otherwise limit Guarantor's liability after a nonjudicial
foreclosure sale to the difference between the obligations guarantied hereby
and the fair market value of the property or interest sold at such nonjudicial
foreclosure sale), 580b and 580d (which would otherwise limit Callaway Golf's
right to recover a deficiency judgment with respect to purchase money
obligations and after a nonjudicial foreclosure sale, respectively), or 726
(which, among other things, would otherwise require Callaway Golf to exhaust
all of its security before a personal judgment may be obtained for a
deficiency) of the California Code of Civil Procedure (including but not
limited to any fair value limitations under Section 580a or 726 of such Code)
or based upon or arising out of Division 9 of the California Uniform
Commercial Code; (ix) any defense based upon the death, incapacity, lack of
authority, or termination of existence of, or revocation hereof by, any person
or entity or persons or entities, or the substitution of any party hereto; (x)
any defense based upon or related to the Guarantor's lack of knowledge as to
the Borrower's financial condition; (xi) any defense based upon the impairment
of any subrogation or reimbursement rights that the Guarantor might have,
including any defense or right based upon the acceptance by Callaway Golf or
an affiliate of Callaway Golf of a deed in lieu of foreclosure without
extinguishing the Guarantied Obligations, even if such acceptance destroys,
alters, or otherwise impairs subrogation rights of the Guarantor, the right of
the Guarantor to proceed against the Borrower for reimbursement, or both;
(xii) any right to designate the application of any sums or property received
by Callaway Golf; and (xiii) any right or defense that is or may become
available to the Guarantor by reason of California Civil Code Sections 2787 to
2855.
5. Borrower's Financial Condition.
The Guarantor acknowledges that the Guarantor is relying upon the
Guarantor's own knowledge and is fully informed with respect to the Borrower's
financial condition. The Guarantor assumes full responsibility for keeping
fully informed of the financial condition of the Borrower and all other
circumstances affecting the Borrower's ability to perform its obligations to
Callaway Golf, and agrees that Callaway Golf will have no duty to report to
the Guarantor any information that Callaway Golf receives about the Borrower's
financial condition or any circumstances bearing on the Borrower's ability to
perform all or any portion of the Guarantied Obligations, regardless of
whether Callaway Golf has reason to believe that any such facts materially
increase the risk beyond that which the Guarantor intends to assume or has
reason to believe that such facts are unknown to the Guarantor or has a
reasonable opportunity to communicate such facts to the Guarantor.
6. Exercise of Subrogation Rights; Subordination.
(a) The Guarantor agrees that (i) the Guarantor shall have no
right of subrogation, reimbursement or indemnity against the Borrower or
against any collateral provided for in the Note unless and until all
Guarantied Obligations have been paid in full; (ii) the Guarantor shall have
no right of contribution against any other guarantor unless and until all
Guarantied Obligations have been paid in full; and (iii) until the Guarantor
is permitted by the terms of this paragraph to exercise any such right of
subrogation, reimbursement, indemnity or contribution, the Guarantor hereby
waives any right to enforce any remedy that the Guarantor might have against
the Borrower or any other guarantor, or to participate in any security held by
Callaway Golf for the Guarantied Obligations, by reason of any one or more
payments by the Guarantor under this Guaranty, including, without limitation,
any such right or any other right set forth in Sections 2845, 2848 or 2849 of
the California Civil Code.
(b) Whether or not any or all of the foregoing waivers of rights
in respect of subrogation, reimbursement, indemnity and contribution are held
to be unenforceable: (i) all existing and future indebtedness of the Borrower
to the Guarantor (including, without limitation, any indebtedness arising by
reason of any payment by the Guarantor hereunder) is hereby subordinated to
all Guarantied Obligations, and, without the prior written consent of Callaway
Golf, such indebtedness shall not be paid, in whole or in part, nor will the
Guarantor accept any payment of or on account of any such indebtedness;
provided, however, that, if Callaway Golf so requests, the Guarantor shall
enforce and/or collect such indebtedness, subject to the following clause
(ii); (ii) each payment by the Borrower, whether received in violation of this
Guaranty or pursuant to the request of Callaway Golf, shall be received by the
Guarantor in trust for Callaway Golf, and the Guarantor shall cause the same
to be paid to Callaway Golf, immediately upon demand by Callaway Golf, on
account of the Guarantied Obligations; and (iii) no such payment shall reduce
or affect in any manner the liability of the Guarantor under this Guaranty.
The Guarantor hereby grants to Callaway Golf a security interest in all
existing and future indebtedness of the Borrower to the Guarantor as security
for the obligations of the Guarantor hereunder, and upon request of Callaway
Golf shall (1) endorse over, and deliver to, Callaway Golf each promissory
note or other writing, if any, evidencing any such indebtedness; and/or (2)
cause each such promissory note or other writing to be marked with a legend
giving notice of the subordination and security interest in favor of Callaway
Golf provided for herein; and/or (3) execute such further documents, and take
such further acts, as Callaway Golf may request for the purpose of further
perfecting, preserving or protecting its rights hereunder.
7. Impairment of Subrogation and Other Rights/Other Waivers.
(a) Upon the occurrence of any default under the Note or by the
Guarantor hereunder (but without limiting Callaway Golf's right to resort to
any other remedy it may have in respect thereof, under the Note or this
Guaranty or otherwise), Callaway Golf may elect to foreclose non-judicially or
judicially against any real or personal property security it holds for the
Guarantied Obligations or any part thereof, or exercise any other remedy
against the Borrower or against any security. No such action by Callaway Golf
shall release or limit the liability of the Guarantor, even if the effect of
that action is to deprive the Guarantor, or any other guarantor, of the right
or ability to collect reimbursement from or to assert subrogation, indemnity,
or contribution rights against the Borrower or against any other guarantor for
any sums paid to Callaway Golf, or to obtain reimbursement by means of any
security held by Callaway Golf for the Guarantied Obligations.
(b) Guarantor acknowledges that if Callaway Golf selects to
foreclose nonjudicially against any real property security it holds for the
Guarantied Obligations or any part thereof, Guarantor may have subrogation
rights that might be destroyed by virtue of application of Section 580d of the
California Code of Civil Procedure and will or may have a defense to its
liability under this Guaranty. Without in any way limiting any other waiver,
consent or acknowledgment contained in this Guaranty and in addition thereto,
Guarantor hereby waives and agrees not to assert or take advantage of any
defense based upon such Section 580d of the California Code of Civil Procedure
or any loss or impairment of subrogation or other rights against the Borrower
or any other person or entity, and no such nonjudicial foreclosure by Callaway
Golf shall release or limit the liability of Guarantor under this Guaranty.
(c) Guarantor waives all rights and defenses arising out of an
election of remedies by Callaway Golf, even though that election of remedies,
such as nonjudicial foreclosure with respect to security for the Guarantied
Obligations, has destroyed Guarantor's rights of subrogation and/or
reimbursement against the Borrower by the operation of Section 580d of the
California Code of Civil Procedure or otherwise. In addition, Guarantor
waives all rights and defenses arising out of the operation of Section 580a of
the California Code of Civil Procedure, and further waives its right to a fair
value hearing under such Section 580a to determine the size of a deficiency
judgment following any foreclosure sale on encumbered real property.
(d) Guarantor waives all rights and defenses that the Guarantor
may have because the Guarantied Obligations are secured by real property.
This means, among other things: (1) Callaway Golf may collect from the
Guarantor without first foreclosing on any real or personal property
collateral pledged by Borrower or otherwise; and (2) if Callaway Golf
forecloses on any real property collateral (a) the amount of the Guarantied
Obligations may be reduced only by the price for which that collateral was
sold at the foreclosure sale, even if the collateral is worth more than the
sale price; and (b) Callaway Golf may collect from Guarantor even if Callaway
Golf, by foreclosing on the real property collateral, has destroyed any right
the Guarantor may have to collect from the Borrower. This is an unconditional
and irrevocable waiver of any rights and defenses the Guarantor may have
because the Guarantied Obligations or portions thereof are secured by real
property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure.
8. Bankruptcy.
So long as any Guarantied Obligation shall be owing to Callaway Golf,
the Guarantor shall not, without the prior written consent of Callaway Golf,
commence, or join with any other person or entity in commencing, any
bankruptcy, reorganization, or insolvency proceeding against the Borrower or
Guarantor. The obligations of the Guarantor under this Guaranty shall not be
altered, limited, or affected by any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization,
liquidation, or arrangement of the Borrower, or by any defense the Borrower
may have by reason of any order, decree, or decision of any court or
administrative body resulting from any such proceeding. In furtherance of the
foregoing, the Guarantor agrees that if acceleration of the time for payment
of any amount payable by the Borrower under the Note or in respect of the
other Guarantied Obligations is stayed for any reason, all such amounts
otherwise subject to acceleration shall nonetheless be payable by the
Guarantor hereunder forthwith upon demand.
9. Claims in Bankruptcy.
The Guarantor shall file in any bankruptcy or other proceeding in which
the filing of claims is required or permitted by law all claims that the
Guarantor may have against the Borrower relating to any indebtedness of the
Borrower to the Guarantor, and will assign to Callaway Golf all rights of the
Guarantor thereunder. If the Guarantor does not file any such claim within
twenty (20) days of any deadline to do so, Callaway Golf, as attorney-in-fact
for the Guarantor, is hereby authorized to do so in the name of the Guarantor
or, in Callaway Golf's discretion, and to cause a proof of claim to be filed
in the name of Callaway Golf or its nominee. The foregoing power of attorney
is coupled with an interest and cannot be revoked. Callaway Golf, or its
nominee, shall have the sole right to accept or reject any plan proposed in
such proceedings and to take any other action that a party filing a claim is
entitled to do. In all such cases, whether in administration, bankruptcy, or
otherwise, the person or persons authorized to pay such claim shall pay to
Callaway Golf the amount payable on such claim. The Guarantor hereby assigns
to Callaway Golf all of the Guarantor's rights to any such payments or
distributions to which the Guarantor would otherwise be entitled; provided,
however, that the Guarantor's obligations hereunder shall not be satisfied
except to the extent that Callaway Golf receives cash by reason of any such
payment or distribution. If Callaway Golf receives anything hereunder other
than cash, the same shall be held as collateral for amounts due under this
Guaranty.
10. Reinstatement.
The liability of the Guarantor hereunder shall be reinstated and
continued, and the rights of Callaway Golf shall continue, with respect to any
amount at any time paid on account of the Guarantied Obligations that Callaway
Golf shall thereafter be required to restore or return in connection with the
bankruptcy, insolvency, or reorganization of the Borrower or the Guarantor, or
otherwise, all as though such amount had not been paid. The determination as
to whether any such payment must be restored or returned shall be made by
Callaway Golf in its sole discretion; provided, however, that if Callaway Golf
chooses to contest any such matter, the Guarantor agrees to indemnify and hold
harmless Callaway Golf from all costs and expenses (including, without
limitation, reasonable legal fees and disbursements) of such litigation.
Callaway Golf shall be under no obligation to return or deliver this Guaranty
to the Guarantor, notwithstanding the payment of the Guarantied Obligations.
If this Guaranty is nevertheless returned to the Guarantor or is otherwise
released, then the provisions of this Section 10 shall survive such return or
release, and the liability of the Guarantor under this Guaranty shall be
reinstated and continued under the circumstances provided in this Section 10
notwithstanding such return or release.
11. Authority, Etc.
The Guarantor represents and warrants that:
(a) it is a corporation duly incorporated, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation;
(b) it has all requisite corporate power and authority to
execute, deliver, and be legally bound by this Guaranty on the terms and
conditions herein stated and to transact any other business with Callaway Golf
as necessary to fulfill the terms of this Guaranty;
(c) the execution and performance by the Guarantor of this
Guaranty have been duly authorized by all necessary corporate or other
organizational action and do not and will not (i) contravene the Guarantor's
charter or bylaws; (ii) violate any provision of any law, rule, or regulation;
or (iii) result in a breach of or constitute a default under any agreement,
lease, or other instrument to which the Guarantor is a party or by which it or
its properties may be bound or affected;
(d) this Guaranty is the legal, valid, and binding obligation of
the Guarantor, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, and other
similar laws affecting creditors' rights generally; and
(e) the Guarantor is not insolvent, and will not be rendered
insolvent by the incurring of its obligations hereunder; the Guarantor is not
engaged, and is not about to engage, in a business or transaction for which
the Guarantor's assets are unreasonably small in relation thereto; and the
Guarantor does not intend to incur, and does not believe that the Guarantor
has incurred or will incur, debts beyond the Guarantor's ability to pay as
they mature.
12. Costs and Expenses.
The Guarantor agrees to pay, upon demand, Callaway Golf's reasonable
out-of-pocket costs and expenses, including (but not limited to) reasonable
legal fees and disbursements and expert witness's fees and disbursements,
incurred in connection with (i) the administration of this Guaranty, (ii) any
effort to collect or enforce any of the Guarantied Obligations or this
Guaranty (including the defense of any claims or counterclaims asserted
against Callaway Golf arising out of this Guaranty or the transactions
contemplated hereby), or (iii) the Guarantor's failure to perform or observe
any of the provisions hereof, as well as in the representation of Callaway
Golf in any insolvency, bankruptcy, reorganization or similar proceeding
relating to the Borrower, the Guarantor, or any security for the Note or this
Guaranty. Until paid to Callaway Golf, such sums shall bear interest from the
date of demand at the rate of interest set forth in the Note. The obligations
of the Guarantor under this Section 12 shall include payment of Callaway
Golf's costs and expenses of enforcing any judgments, which obligation shall
be severable from the remaining provisions of this Guaranty and shall survive
the entry of judgment.
13. Miscellaneous.
(a) Notice, Etc. All notices and other communications provided
for hereunder shall be in writing (including telegraphic, telecopied, or telex
communication) and mailed or telegraphed, telecopied or delivered to the
parties at their respective addresses as set forth on the signature page
hereto, or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties complying as to delivery
with the terms of this Section 13(a). All such notices and communications, if
mailed, shall be effective upon deposit in the United States mail, first-class
(or certified) postage prepaid; if telegraphed or telecopied, shall be
effective when transmitted; if sent by telex, shall be effective when the
telex is sent and the appropriate answer back is received; and if delivered in
another way, shall be effective upon receipt.
(b) Agreement Binding. This Guaranty shall be binding upon the
Guarantor and the Guarantor's heirs, executors, personal representatives,
successors, and assigns, and shall inure to the benefit of, and be enforceable
by, Callaway Golf and Callaway Golf's successors and assigns.
(c) Severability. If any provision of this Guaranty shall be
deemed or held to be invalid or unenforceable for any reason, such provision
shall be adjusted, if possible, rather than voided, so as to achieve the
intent of the parties to the fullest extent possible. In any event such
provision shall be severable from, and shall not be construed to have any
effect on, the remaining provisions of this Guaranty, which shall continue in
full force and effect.
(d) Security. This Guaranty and the obligations hereunder are
secured by the Membership Interest Security Agreement made and entered into as
of June 13, 1997 by Guarantor and Callaway Golf ("Membership Interest Security
Agreement") and the property described therein. All recoveries under such
Membership Interest Security Agreement may be applied to the obligations
secured thereby in such order and in such amounts as may be determined by
Callaway Golf in its sole and absolute discretion.
(e) Governing Law; Jurisdiction. This Guaranty shall be
governed by and construed in accordance with the laws of the State of
California applicable to contracts, between residents thereof, to be wholly
performed within the State of California.
(f) Rights Cumulative; No Waiver. Callaway Golf's options,
powers, rights, privileges, and immunities specified herein or arising
hereunder are in addition to, and not exclusive of, those otherwise created or
existing now or at any time, whether by contract, by statute, or by rule of
law. Callaway Golf shall not, by any act, delay, omission or otherwise, be
deemed to have modified, discharged, or waived any of Callaway Golf's options,
powers, or rights in respect of this Guaranty, and no modification, discharge,
or waiver of any such option, power, or right shall be valid unless set forth
in writing signed by Callaway Golf or Callaway Golf's authorized agent, and
then only to the extent therein set forth. A waiver by Callaway Golf of any
right or remedy hereunder on any one occasion shall be effective only in the
specific instance and for the specific purpose for which given, and shall not
be construed as a bar to any right or remedy that Callaway Golf would
otherwise have on any other occasion.
(g) Default. The occurrence of any one of the following events
shall, at the election of Callaway Golf, be deemed an event of default by
Guarantor under this Guaranty: (a) Guarantor shall fail or neglect to perform,
keep or observe any term, provision, condition or covenant, contained in this
Guaranty, and any monetary failure is not cured within ten (10) days of
written notice by Callaway Golf to Guarantor, and any non-monetary failure is
not cured within thirty (30) days of written notice by Callaway Golf to
Guarantor; (b) if any representation or warranty made in this Guaranty shall
be false in any material respect; (c) if any material portion of Guarantor's
assets are seized, attached, subjected to a writ, or are levied upon, or come
within the possession of any receiver, trustee, custodian or assignee for the
benefit of creditors; or (d) occurrence of a default or event of default under
the Note or Membership Interest Security Agreement. Upon the occurrence of an
event of default, Guarantor's obligations hereunder shall be, at the option of
Callaway Golf, accelerated and shall all be due and payable and enforceable
against Guarantor, whether or not the Guarantied Obligations are then due and
payable and Callaway Golf may, in its sole discretion, in addition to any
other right or remedy provided by law, all of which are cumulative and
non-exclusive, proceed to suit against Guarantor, whether suit has been
commenced against Borrower.
(h) Entire Agreement. This Guaranty and the written agreements
referred to herein contain the entire agreement between the Guarantor and
Callaway Golf with respect to its subject matter, and supersede all prior
communications relating thereto, including, without limitation, all oral
statements or representations. No supplement to or modification of this
Guaranty shall be binding unless executed in writing by the Guarantor and
Callaway Golf.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the
date first written above.
GUARANTOR:
SAINT ANDREWS GOLF CORPORATION
By:___________________________
Ron Boreta
Its: President
By:___________________________
Its:
GUARANTOR'S ADDRESS FOR NOTICE:
5235 South Valley View Boulevard, Suite 10
Las Vegas, Nevada 89118
Attention: Ron Boreta, President
Telephone No.: (702) 798-7777
Facsimile No.: (702) 739-9509
CALLAWAY GOLF COMPANY'S ADDRESS FOR NOTICE:
Callaway Golf Company
2285 Rutherford Road
Carlsbad, California 92008-8815
Attention: Donald H. Dye, President and Chief Executive Officer
Telephone No.: (760) 930-5738
Facsimile No.: (760) 930-5022
FORBEARANCE AGREEMENT
This Forbearance Agreement (the "Agreement") is made and entered into on
March 18, 1998, by and between All-American Golf LLC, a California limited
liability company ("All-American"), Saint Andrews Golf Corporation, a Nevada
corporation ("Saint Andrews"), and Callaway Golf Company, a California
corporation ("Callaway Golf"), and is made with reference to the following
facts:
RECITALS
A. On or about June 13, 1997, All-American executed and delivered to
Callaway Golf a Secured Promissory Note in the original amount of Five Million
Two-Hundred Fifty Thousand Dollars ($5,250,000.00) (the "Note").
B. The Note is secured pursuant to a Continuing Security Agreement
dated June 13, 1997 by and between All-American and Callaway Golf (the
"Security Agreement"), a Membership Interest Security Agreement dated June 13,
1997, by and between Callaway Golf and Saint Andrews (the "Membership Interest
Security Agreement"), and a Deed of Trust dated June 13, 1997 executed by
All-American in favor of Callaway Golf securing the Indenture of Lease dated
June 13, 1997 by and between Urban Land of Nevada, a Nevada corporation, and
Callaway Golf (the "Deed of Trust") (the Note, Security Agreement, Membership
Interest Security Agreement and Deed of Trust are collectively referred to as
the "Loan Documents").
C. Callaway Golf and Saint Andrews are also parties to that certain
Operating Agreement for All-American Golf LLC dated June 13, 1997 (the
"Operating Agreement").
D. Under the terms of the Note, All-American was obligated to
commence making payments of interest accrued on the principal outstanding
thereunder on December 21, 1997, and to make monthly installments of interest
accrued on the principal outstanding on the same day of each month thereafter
until the Maturity Date (as defined in the Note). All-American has failed to
make the monthly interest installments due on December 21, 1997, January 21,
1998 and February 21, 1998, and has advised Callaway Golf that it will be
unable to make the payments due on March 21 and April 21, 1998. There is past
due and owing on account of accrued and unpaid interest on the Note
$243,921.23 as of February 21, 1998, and including the payment due on March
21, 1998 of $43,750.00 and the payment due on April 21, 1998 of $43,750.00, as
of April 21, 1998 there will be due and owing under the Note at least
$331,421.23 (the "Arrears").
E. As a result of the failure by All-American to make the payments
referred to herein, the Note is presently in default. Callaway Golf has the
immediate and unconditional right to proceed against All-American under the
Note to collect amounts due under the Note and to exercise upon or enforce its
rights to its collateral as set forth in the Loan Documents.
F. All-American and Saint Andrews have requested Callaway Golf to
forbear from proceeding against All-American and Saint Andrews under the Note
and other Loan Documents and in connection therewith, have agreed to certain
terms and conditions to provide the inducement for such forbearance.
G. In addition, Saint Andrews has requested that Callaway Golf extend
certain financial accommodations to All-American SportPark, Inc.
("SportPark"), a wholly-owned subsidiary of Saint Andrews.
ACCORDINGLY, in consideration of Callaway Golf's forbearing from
immediately proceeding against All-American and Saint Andrews under the Note
and other Loan Documents, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereby agree as follows:
1. Forbearance. Callaway Golf hereby agrees it will forbear from
proceeding against All-American and Saint Andrews under the Note and other
Loan Documents, subject to the terms and conditions hereinbelow contained:
1.1 Callaway Golf's agreement to forbear is expressly
conditioned upon the following:
(a) All-American shall timely make each payment due under
the Note, commencing with the payment due on May 21, 1998.
(b) In addition to the regularly scheduled Note payments,
simultaneously with the making of each regularly scheduled payment under the
Note, commencing with the payment due on May 21, 1998, All-American shall make
additional monthly payments under the Note of $36,824.81, or more, to cure the
Arrears, and shall continue to make such payments on the same day of each
month thereafter until January 21, 1999, at which time All-American shall make
a payment to Callaway Golf in an amount sufficient to pay in full the
remaining unpaid Arrears.
(c) In addition to the foregoing payments, on the tenth
(10th) day of each month, commencing on June 10, 1998, and on the same day of
each month thereafter until the Arrears shall be paid in full, All-American
shall make an additional payment (each an "Excess Payment") to be applied to
the Arrears in an amount equal to that amount that Cash from Operations (as
defined in the Operating Agreement) for the previous calendar month shall
exceed $300,000.00. The payment of any Excess Payment shall not release
All-American from thereafter tendering all regularly scheduled monthly
payments required as a condition to the forbearance hereunder.
(d) All-American's and Saint Andrews' continued compliance
with the terms of the Loan Documents, subject, however, to the provisions of
paragraphs 1.1(a), (b) and (c) above.
1.2 Callaway Golf's agreement of forbearance shall expire on
January 21, 1999 unless sooner terminated as provided herein or unless
extended by written agreement between the parties.
1.3 Notwithstanding Callaway Golf's agreement to forbear,
Callaway Golf may (but shall not be obligated to) at any time take any action
for the following purposes:
(a) To protect or preserve any of the security for the
Note;
(b) To appear in and defend any action affecting any of
such security;
(c) To take any action to effect the purposes and intent
of this Agreement.
2. Further Covenants. All-American and Saint Andrews further agree
as follows:
2.1 All-American and Saint Andrews shall execute any and all
documents and take any action reasonably requested by Callaway Golf to
effectuate the terms of this Agreement.
2.2 That although Callaway Golf by this document agrees on
certain conditions to forbear from exercising remedies under the Note and
other Loan Documents, Callaway Golf has not waived any default or defaults or
claims or rights that may exist now or may occur in the future except as
otherwise provided herein; Callaway Golf does not waive or acquiesce, and this
Agreement shall not be construed as a waiver or acquiesce in, any default or
event of default under any agreement entered into between Callaway Golf and
All-American or Saint Andrews; no failure to exercise and no delay in
exercising, on the part of Callaway Golf, any right, remedy, power or
privilege hereunder or under any other Loan Documents shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder or thereunder preclude any other right, remedy,
power or privilege or constitute an election of remedy; and the rights,
remedies, powers and privileges hereunder and therein are cumulative and not
exclusive of any rights, remedies, powers or privileges provided by law.
2.3 During the time period in which the forbearance under
paragraph 1 above shall remain in effect, All-American and Saint Andrews agree
that any applicable statute of limitations to any cause or causes of action
which Callaway Golf may have or hereafter acquire against All-American or
Saint Andrews under or in connection with the Note or other Loan Documents
shall be tolled.
2.4 That each of the terms of the Note and other Loan Documents
are hereby ratified and reaffirmed unconditionally, and shall remain in full
force and effect.
3. Miscellaneous.
3.1 This Agreement is entered into without any party having
relied on any statement or representation of any adverse party. Each party
represents and warrants that that party has been represented by legal counsel
of that party's own free choice and that counsel has explained to that party
the full legal effect of this Agreement and the arrangements referred to
herein.
3.2 The parties hereto confirm the accuracy of the Recitals set
forth above, each of which are incorporated herein by reference.
3.3 All representations, warranties, agreements and covenants
made in this Agreement shall survive the closing and termination of this
Agreement notwithstanding any investigation at the time made by or on behalf
of either party.
3.4 This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. Except as otherwise
specifically provided herein, no change, modification, addition or termination
of this Agreement or any part hereof shall be valid unless it is in writing
and signed by or on behalf of the party to be charged therewith.
3.5 No waiver of any provision of this Agreement shall be
effective unless in writing and signed by the parties to be charged with such
waiver, and no waiver shall be deemed a continuing waiver or a waiver in
respect to any subsequent breach or default either of a similar or of a
different nature, unless expressly stated in writing.
3.6 This Agreement shall be binding upon and shall inure to the
benefit of the respective administrators, representatives, partners,
partnerships, subsidiary organizations, successors, assignees of each of the
parties hereto, and all other persons, firms, corporations, associations,
partnerships or other entities wherever the context requires or admits.
3.7 The parties hereto acknowledge that simultaneously herewith
the Membership Interest Security Agreement is being modified to include as an
additional "Secured Obligation" as defined thereunder Saint Andrews'
obligations under a Guaranty dated March 18, 1998, pursuant to which Saint
Andrews is guarantying all obligations of SportPark to Callaway Golf under a
Promissory Note dated March 18, 1998 in the original stated principal amount
of Three Million Dollars ($3,000,000.00) executed by SportPark in favor of
Callaway Golf. The parties hereto consent to the modification of the
Membership Interest Security Agreement and acknowledge and agree that (a)
references to the Membership Interest Security Agreement in the Loan Documents
shall include such agreement as it may be modified or amended from time to
time, (b) an event of default under the Guaranty is a default under the
Membership Interest Security Agreement (as amended) and that an event of
default under the Membership Interest Security Agreement is a default under
all of the Loan Documents, and (c) Callaway Golf may apply all recoveries
under the Membership Interest Security Agreement to the Secured Obligations
(as defined thereunder) in such order and in such amounts as Callaway Golf may
determine in its sole and absolute discretion.
3.8 This Agreement shall not be construed nor is it intended as
an amendment or modification of the Note or other Loan Documents, but rather
it simply memorializes the terms and conditions under which Callaway Golf is
willing to temporarily forbear from exercising certain of its rights and
remedies under the Note and other Loan Documents.
3.9 Callaway Golf's agreement to forbear shall terminate
immediately on the earlier to occur of (a) January 21, 1999, or (b)
All-American's or Saint Andrews' default in the performance of or failure to
comply with any of the terms or conditions hereof, or (c) the filing of a
petition for relief under Title 11 of the United States Code or any successor
provision by or against All-American or Saint Andrews. Upon such termination,
and at all times thereafter, Callaway Golf may proceed to enforce any and all
of its rights and remedies provided by the Note, this Agreement and the other
Loan Documents or as otherwise provided by law.
3.10 The obligations of each of the parties hereto are joint and
several.
3.11 In the event any litigation or contested proceeding arises
between or among any party or parties to this Agreement relating to this
Agreement, the prevailing party shall be entitled to recover, in addition to
the cost provided by law, all actual costs, expenses and attorney's fees
incurred, including any costs or attorney's fees incurred in connection with
any bankruptcy, liquidation, reorganization or other debtor-relief proceeding
of any party hereto.
3.12 This Agreement shall be construed and enforced in accordance
with California law.
3.13 This Agreement may be executed by one or more of the parties
in any number of separate counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument. This
Agreement shall not be effective until executed by all parties hereto.
Executed at San Diego, California on the date first above written.
ALL-AMERICAN GOLF LLC,
a California limited liability company
By: SAINT ANDREWS GOLF CORPORATION,
a Nevada corporation, Managing Member
By:______________________________________
Ron Boreta, President
SAINT ANDREWS GOLF CORPORATION,
a Nevada corporation
By:_______________________________
Ron Boreta, President
CALLAWAY GOLF COMPANY,
a California corporation
By:_______________________________
Donald H. Dye, President and
Chief Executive Officer
AMENDMENT NO. 2
TO
LICENSE AGREEMENT
This Amendment No. 2 to that certain License Agreement (the "Agreement")
dated as of August 1, 1995, (the "Agreement Date") by and between the National
Association for Stock Car Auto Racing, Inc., a Florida Corporation
("Licensor") and Saint Andrews Golf Corporation, a Nevada corporation
("Licensee"), is entered into as of May 6, 1997. All references herein to
capitalized terms not otherwise defined herein shall refer to the definitions
of such terms in the Agreement.
BACKGROUND
A. Pursuant to the Agreement, Licensee acquired certain licenses from
Licensor to use certain trademarks and service marks in the development,
design, operation, and promotion of indoor and outdoor go-cart racing
facilities having a NASCAR racing theme, and Licensor granted Licensee such
licenses, on the terms and conditions as set forth in the Agreement and
subsequent Amendment No. 1 entered into by Licensor and Licensee as of August
1, 1995, (the "Amendment"); and
B. Licensor and Licensee desire to amend the Agreement and the Amendment
to provide for certain further terms and conditions but to otherwise maintain
all other terms and conditions of the Agreement and the Amendment;
NOW THEREFORE, for and in consideration of Ten Dollars ($10.00) in hand
and paid and other good and valuable consideration, the receipt in sufficiency
of which is hereby acknowledged, and the terms and conditions set forth
herein, the parties hereby agree as follows:
TERMS AND CONDITIONS
1. Section 1 of the Agreement is hereby amended to provide that (i)
the scope of the license granted by Licensor to Licensee shall be exclusive to
the Territory as amended herein, provided that Licensee meets the terms and
conditions as set forth herein, and (ii) Licensor shall have the right to
license third parties in connection with the operation and promotion of
SpeedParks outside Las Vegas, Nevada.
2. The definition of Territory is hereby amended to be only Las
Vegas, Nevada, and Southern California under the terms and conditions
specifically set forth herein.
3. Sections 1, 15, 16, and 17 of the Agreement are hereby amended to
provide that Licensee shall have the exclusive right to utilize the NASCAR
Mark only in Las Vegas, Nevada, provided that Licensee opens said SpeedPark no
later than March 1, 1998. If Licensee fails to have the Las Vegas SpeedPark
opened and fully operational by said date, it will be considered an Event of
Default under the Agreement and Licensor shall have the right to terminate the
Agreement immediately upon notice to Licensee without any right to cure. If
Licensee opens said Las Vegas SpeedPark no later than March 1, 1998, Licensee
shall have the right to continue operating said SpeedPark pursuant to this
Agreement and subsequent Amendments through December 31, 2003.
4. Subject to the conditions herein, Licensee shall have the right to
choose one site in Southern California ("Site") where Licensee intends to open
a second SpeedPark pursuant to the Agreement. Upon Licensee notification,
Licensee shall have the exclusive right to utilize the NASCAR Mark pursuant to
the Agreement within a One Hundred (100) Mile radius of the Site provided that
Licensee has the Las Vegas SpeedPark opened and fully operational by March 1,
1998. If the SpeedPark at the California Site is not opened and fully
operational by March 1, 1999, Licensee's license shall be revoked with respect
to the California Site and its corresponding One Hundred (100) Mile radius and
Licensor shall have the right to license a third party to utilize the NASCAR
Mark in connection with a SpeedPark in the Southern California market. If
Licensee has the SpeedPark at the Southern California Site opened and fully
operational by March l, 1999, Licensee shall have the right to continue
operating said SpeedPark pursuant to this Agreement and subsequent Amendments
through December 31, 2003.
5. Commencing on July 1, 2002, through August 30, 2002, Licensor and
Licensee agree to enter into good faith negotiations regarding the renewal of
this Agreement.
6. Licensor owns the "NASCAR SpeedPark" trademark and design as seen
in Exhibit 1 and any variations thereof. Licensor shall have the right to
license the said NASCAR SpeedPark trademark and design to third parties at
NASCAR's discretion. Licensee shall have the right to continue using the
NASCAR SpeedPark trademark and design and any variations thereof in any of the
SpeedParks Licensee operates pursuant to this license during the term of this
Agreement.
7. Licensee agrees to allow Jeff Gordon to participate in SpeedPark
facilities developed by third parties outside Las Vegas, Nevada, and the Site
in Southern California if such an opportunity is available.
8. Section l 6(c)(vi) of the Agreement shall be canceled in its
entirety to accommodate the terms and conditions as provided herein.
9. Licensor agrees to continue supporting Licensee's development,
sponsorship, and marketing programs pursuant to the Agreement.
10. Licensor and Licensee hereby agree to negotiate in good faith to
establish minimum performance guidelines. If Licensor and Licensee cannot
mutually agree on such performance guidelines after a reasonable period of
negotiations, Licensor will have the right to establish performance guidelines
in its sole discretion. Licensor hereby reserves its right to exit the
Agreement effective August 1, 1998 (the "Exit Date"), if Licensee does not
meet such performance guidelines provided that Licensor gives at least sixty
(60) days written notice.
11. All other terms of the Agreement not amended herein shall remain in
full force and effect. To the extent that the terms and conditions herein are
not inconsistent with the prior Agreement and Amendment, such terms shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 to
the Agreement effective as of May 6, 1997.
LICENSOR: LICENSEE:
NATIONAL ASSOCIATION FOR SAINT ANDREWS GOLF CORPORATION
STOCK CAR AUTO RACING. INC.
By: /s/ George Pyre /s/ Ron Boreta
Print Name: George Pyre Print Name: Ron Boreta
Date: 5/12/97 Date: 5/7/97
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheets and statements of operations found on pages F-2 and F-3 of the
Company's Form 10-KSB for the fiscal year ended December 31, 1997, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 67,100
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 479,200
<PP&E> 9,981,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,793,700
<CURRENT-LIABILITIES> 3,618,500
<BONDS> 0
0
4,740,000
<COMMON> 3,000
<OTHER-SE> 3,204,300
<TOTAL-LIABILITY-AND-EQUITY> 18,793,700
<SALES> 0
<TOTAL-REVENUES> 386,200
<CGS> 569,300
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,874,800
<LOSS-PROVISION> (2,057,900)
<INTEREST-EXPENSE> (122,100)
<INCOME-PRETAX> (1,936,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,936,400)
<DISCONTINUED> 2,084,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 220,700
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
